United States: Post-Brexit Scenarios For UK Competition Policy And Public Enforcement: The EEA Model V Complete Independence

Anti-competitive practices; Comparative law; Competition policy; Enforcement; EU law; European Economic Area; European Union; Merger control; State aid; Third countries; United Kingdom; Withdrawal On 23 June 2016, the British people voted by majority to leave the European Union (EU) in an "advisory" referendum. The referendum result was a seismic shock, unexpected by financial markets and not predicted by final pre-referendum polls. With a new British Prime Minister now at the helm, the process of coming to terms with the referendum result and planning for the significant practical challenge of achieving Brexit is now underway in both the UK and Brussels.

For the time being, the UK is still a member of the EU, with all the rights and responsibilities that membership entails. As noted by the remaining 27 heads of state and government in the statement following their informal meeting of 29 June 2016, "until the UK leaves the EU, EU law continues to apply to and within the UK". Formal exit negotiations between the UK and the EU (to be conducted by the European Commission (Commission) on the basis of a mandate from the European Council) will only commence once the UK has delivered its so-called "article 50 notice".¹ Present indications are that this will not occur until early 2017, possibly much later.² Once the art.50 notice is delivered to Brussels, exit will occur two years later, unless all the EU Member States agree to extend the exit agreement negotiation period.³ A significant motivation for Leave voters in the UK referendum was the perception that too much national power had been devolved to the EU over the course of the 40-odd years in which the UK has been an EU member. The EU has the competences conferred on it by the EU's treaties, which form its constitutional foundation. Competences not conferred upon the EU in those treaties remain with the EU Member States.

In the area of competition law and policy, art.3 of the Treaty on the Functioning of the EU (TFEU) states that the Union shall have "exclusive competence in the establishing of the competition rules necessary for the functioning of the internal market". But EU Member States retain their competence to regulate competition at the national level. So national competence and EU competence are autonomous and parallel. The European Commission's Directorate-General for Competition (DG Competition) acts as a supra-national antitrust agency for the bloc, while all the EU Member States have their own national competition authorities (NCAs). In the UK, that national agency is the Competition and Markets Authority (CMA).

So, as the UK starts to think about extracting itself from the EU, at least as concerns competition enforcement, it already has a national agency and national legislation in place and there is no immediate legal vacuum to fill before Brexit can occur. Nevertheless, owing to the unique and highly developed system of autonomous and parallel competition competence between the EU and its Member States, the UK's national competition regime is intertwined with that of the EU, so to speak, in a number of ways. This is because, over the years, DG Competition and the NCAs have developed various mechanisms in order to be able to work together effectively and efficiently. Some of this is reflected in EU and UK legislation. Other aspects are to be found in guidance notices or soft law.

The extent to which the EU's supranational competition regime will have to be disentangled from the UK's regime will ultimately depend upon the arrangement that the UK negotiates with the EU for its post-Brexit relationship. Much has been written as to the possibility of the UK adopting the so-called "Norway model", i.e. becoming a signatory to the EEA Agreement as an EFTA rather than EU Member State, ⁴ once the UK leaves the EU.⁵ This is the closest form of relationship the UK could have with the EU short of being an EU member, and there have certainly been a number of political statements on both sides of the English Channel since the referendum to the effect that a close relationship between the UK and the EU post-Brexit is desirable.⁶

However, EEA membership for the UK exactly and fully replicating the arrangement presently enjoyed by Norway, Liechtenstein and Iceland could be a politically unpalatable solution for a number of Brexit proponents, since EEA membership includes single market access and entails signing up to the free movement of persons requirement.⁷ This was arguably the most reviled aspect of EU membership for UK referendum voters in the Leave camp. Statements by the new Prime Minister, Theresa May, would indicate that the UK will be aiming to put in place limitations on the numbers of EU migrants who can come to the UK to work.⁸ Any such limitations will probably mean that EEA membership in its purest form is not possible, but it is not out of the question that a unique tailored relationship with the EU might be negotiable, with special concessions concerning the free movement of workers.⁹ Everything is a question of negotiation, and it is worth remembering that even now as an EU Member State, the UK's membership is not "standard". It has an opt-in in the area of Justice and Home Affairs legislation,¹⁰ dispensation from the "ever closer union" requirement, and is not a member of the euro zone. Further, it only participates in some aspects of Schengen.¹¹

Specifically in the area of competition enforcement seen discretely, it is possible that the EEA model might prove feasible, even if full free movement of persons is not an element of the UK's new relationship with the EU. Although the EEA Agreement has been in force for over 20 years, the way in which it functions and applies to competition matters is not widely understood. The purpose of this article is to look at this in some depth, and in doing so examine two opposing potential scenarios for UK competition policy post-Brexit: the first in which competition matters between the UK and the EU are regulated in the way which presently occurs under the EEA Agreement between the 27 EU Member States and Iceland, Liechtenstein and Norway; and the second in which the UK competition regime is completely, surgically separated from that of the EU. There may of course be a variety of other possible options in between these two scenarios, but they will not be explored in this article.

Post-Brexit competition arrangement along the lines of the current EEA Agreement competition regime

Articles 6 and 7 of the EEA Agreement provide that the acquis communautaire is part of the EEA Agreement. It follows that EU legislation implementing competition rules that are contained in the Treaty on the Functioning of the EU (currently set out in Annex XIV of the EEA Agreement) will apply in the EEA. The competition provisions of the EEA Agreement are to be interpreted in a manner that is consistent with judgments of the EU courts prior to the date of the signature of the EEA Agreement. The EFTA Court has gone further and held that subsequent judgments of the EU courts are relevant. In particular, it held that

It is important to note that certain products are excluded from the scope of the EEA Agreement and are therefore not subject to the competition provisions of the Agreement. In particular, art.8 of the EEA Agreement only applies to those products falling within Chs 25 to 97 of the Harmonised Description and Coding System (HS Nomenclature), with the exception of the products listed in Protocol 2 to the Agreement. It follows that neither the Commission nor the EFTA Surveillance Authority will be competent to apply competition rules in cases where products that fall outside the scope of the EEA Agreement are concerned. In such cases, jurisdiction will revert to the national competition authority of the EFTA State.¹³

Antitrust

The competition provisions of the EEA Agreement mirror the rules contained in arts 101, 102 and 106 of the TFEU. In particular, arts 53 and 54 of the EEA Agreement contain prohibitions on anti-competitive agreements and the abuse of a position of dominance, respectively. Both provisions are applicable if trade between one or more EU Member States and one or more EFTA states that are signatories of the EEA Agreement (i.e. Iceland, Liechtenstein and Norway) is affected. Annex XIV extends the application of EU block exemption regulations which provide safe harbours for certain categories of agreements from the prohibition in art.101 TFEU.¹⁴ Therefore, from a substantive standpoint, there would be no material changes to UK competition policy if the UK became a party to the EEA Agreement as an EFTA state.

The responsibility for the enforcement of the competition provisions in the EEA Agreement is shared between the Commission and the EFTA Surveillance Authority. The rules on the division of responsibility between the two authorities that are contained in art.56 of the EEA Agreement do not foresee concurrent jurisdiction, and are designed so that there is a "one-stop shop". In cases involving restrictive agreements that are caught by both art.101 TFEU and art.53 of the EEA Agreement, the Commission will have jurisdiction to take a decision for the entirety of the EEA territory.¹⁵ Where an agreement only affects trade between the EU and one or more EFTA states and there is no appreciable effect on trade between Member States, jurisdiction will be determined by reference to the percentage of the combined EEA-wide turnover that was generated by the undertakings concerned.¹⁶ If the undertakings concerned achieve 33 per cent or more of their turnover in EFTA territory, the EFTA Surveillance Authority will have jurisdiction; the Commission will have jurisdiction in cases where the undertakings concerned achieve 67 per cent or more of their turnover in the EU.¹⁷ In cases where only trade between EFTA states is affected, the EFTA Surveillance Authority will have jurisdiction. These rules for the allocation of jurisdiction are replicated in cases involving the abuse of a dominant position.¹⁸

There are extensive co-operation and co-ordination provisions underpinning arts 53 and 54 that are set out in Protocol 23 to the EEA Agreement. These provisions are intended to promote the consistent application and enforcement of EU competition law principles. Protocol 23 puts in place obligations of mutual administrative assistance and consultation in enforcement activities as well as information sharing arrangements. This includes an obligation for the competent authority to consult the other surveillance authority prior to the issue of a statement of objections and the publication of a decision. Moreover, both authorities as well as the states that fall under their supervision are entitled to be present at Advisory Committee meetings of the competent authority. Protocol 23 essentially ensures that the EFTA Surveillance Authority enjoys the same rights as a national competition authority of an EU Member State.

It follows from the above that there would be no significant changes to the UK antitrust enforcement regime, in the event the UK were to join the EEA as an EFTA state.

Merger control

There would also be no material changes in the field of merger control if the UK were to become a member of the EEA post-Brexit. Where a transaction qualifies for review under the EU Merger Regulation, the Commission will be the sole competent authority in the EEA, with the exception of cases that relate to products that fall outside the scope of the EEA Agreement.¹⁹ It follows that the Commission will exercise exclusive jurisdiction not only with respect to EU Member States, but also in relation to the territories of the EFTA states. Conversely, where the turnover thresholds are only exceeded in the territories of the EFTA states, as opposed to the whole of the EEA, the transaction will be reviewable by the EFTA Surveillance Authority.²⁰

Protocol 24 to the EEA Agreement contains detailed rules on the referral of cases to or from EFTA states that are similar to those in the EU Merger Regulation. At the pre-notification stage, parties to a transaction are able to request a referral from the EFTA states to the Commission where it is reviewable under the national competition laws of at least three EU Member States and at least one EFTA state.²¹ In the event of a veto by one or more EFTA states, the national competition authority of the competent EFTA state(s) will retain jurisdiction. However, a veto by an EFTA state will have no impact on the request for referral from the EU Member States to the Commission. In addition, the parties to a transaction may request a referral from the Commission to a competent EFTA state. The threshold for referral to an EFTA state is identical to the one contained in the EU Merger Regulation. The parties need to demonstrate by way of a reasoned submission that the

The EEA Agreement also enables the Commission to refer a transaction to an EFTA state post-notification.²³ The grounds for referral are twofold. First, a transaction may be referred to an EFTA state where it affects competition in a market within that EFTA state that presents the characteristics of a distinct market. Secondly, the Commission may refer a transaction to an EFTA state where the transaction affects competition in a market within that EFTA state, which presents all the characteristics of a distinct market and which does not constitute a substantial part of the territory covered by the EEA. Post-notification referrals to the Commission are also possible where a transaction may affect trade between one or more EU Member States and one or more EFTA states, and it threatens to significantly affect competition in one or more EFTA states.²⁴ However, while an EFTA state may join a referral request, it is unable to initiate a request itself.²⁵ It follows that the powers of EFTA states are in this regard more limited than those of EU Member States.

Given the above, UK membership of the EEA post-Brexit would not lead to significant changes to the merger control regime. In terms of jurisdiction, some transactions may no longer originally qualify for review under art.1(2) and 1(3) of the EU Merger Regulation since UK turnover would no longer count towards the EU-wide turnover thresholds. However, some of these would still find their way back to Brussels under the pre-notification upward referral provision in art.4(5) of the EU Merger Regulation in any event. So a significant proportion of transactions would still continue to benefit from a "one-stop shop" since they would be reviewable either by the Commission or the EFTA Surveillance Authority.

State aid

If the UK were to opt for EEA membership as an EFTA state, or an EEA-like arrangement concerning competition enforcement, it would be subject to a parallel state aid regime that is in line with EU rules in art.107 TFEU. Article 61 of the EEA Agreement mirrors the wording of art.107 TFEU, and the EFTA Surveillance Authority would assume the role of the Commission in monitoring state aid granted by the UK.

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Footnotes

1 Article 50(2) TEU provides that "a Member State which decides to withdraw shall notify the European Council of its intention". Article 50(1) allows any Member State to withdraw from the Union "in accordance with its own constitutional requirements". The UK constitutional requirements for delivering the art.50 notice are presently unclear. The UK Government takes the view that the Government may decide of its own accord when to deliver the notice, but several court challenges have been brought asserting that an Act of Parliament is required to trigger the withdrawal procedure, on the basis of the sovereignty of Parliament. See Santos v Chancellor for the Duchy of Lancaster CO/3281/2016, High Court of Justice, QBD (Admin) (19 July 2016). For a discussion of this issue see N. Barber, T. Hickman and J. King, "Pulling the Article 50 'Trigger': Parliament's Indispensable Role" (27 June 2016), U.K. Const. L. Blog, https://ukconstitutionallaw.org/2016/06/27/nick-barber-tom-hickman-and-jeff-king -pulling-the-article-50-trigger-parliaments-indispensable-role/ [Accessed 1 September 2016].

2 Statement by UK Prime Minister Theresa May, joint press conference in Berlin with German Chancellor Angela Merkel (20 July 2016). The 27 remaining members of the EU have implicitly acknowledged that it is for Britain to decide the timing of the delivery of the art.50 notice: see Statement, informal meeting of the 27 (Brussels, 29 July 2016).

3 TEU art.50(3) states that "the Treaties shall cease to apply to the State in question from the date of entry into force of the withdrawal agreement or, failing that, two years after the notification referred to in para.2, unless the European Council, in agreement with the Member State concerned, unanimously decides to extend this period".

4 The UK is presently a signatory to the EEA Agreement in its capacity as a Member State of the EU.

5 See for example Swati Dhingra and Thomas Sampson, "Life after Brexit: What are the UK's options outside the European Union?", LSE Centre for Economic Performance (12 February 2016), p.4; Wolfgang Münchau, "Brexit: The Norway option is the best available for the UK", Financial Times, 28 June 2016; Jean-Claude Piris, "If the UK Votes to Leave: The Seven Alternatives to EU Membership", Centre for European Reform (12 January 2016), p.2.

6 "In the future, we hope to have the UK as a close partner of the EU and look forward to the UK stating its intentions in this respect": Statement by the remaining 27 heads of state and government (Brussels, 29 June 2016), para.4.

7 The remaining 27 heads of state and government stated, following their informal Brussels meeting on 29 June 2016, that "access to the Single Market requires acceptance of all four freedoms": para.4.

8 See for example Rowena Mason and Alex Duval Smith, "Theresa May takes Brexit's immigration message to eastern Europe", The Guardian, 28 July 2016, in which the Prime Minister is quoted as saying that UK voters had sent a "very clear message that they do not want free movement to continue as it has in the past". In an earlier interview with The Telegraph published on 3 July 2016, Mrs May said that as PM she would reform the free movement of people, but stopped short of saying she would abolish it altogether. In launching her campaign for leadership of the Conservative Party on 30 June 2016, she stated that "there is clearly no mandate for a deal that involves accepting the free movement of people as it has worked hitherto".

9 While visiting eastern European countries in late July 2016, the Prime Minister stressed that she was keen for the UK to have its own distinct relationship with the EU, rather than an "off the shelf" model previously negotiated with other nations such as Norway or Switzerland.

10 The UK's participation in EU legislation on Justice and Home Affairs is principally governed by Protocol 21 to the Lisbon Treaty. That allows the UK to choose, within three months of a proposal being presented to the Council, whether it wishes to participate in the adoption and application of any such proposed measure. If the UK notifies the President of the Council of its intention to participate within that three-month period, there is no possibility of opting out later. If the measure is adopted, the UK is bound, the European Court of Justice has jurisdiction over the matter and the Commission has the power to enforce in respect of any failure to properly implement the measure. If the UK does not opt in by the three-month point, it is still entitled to a seat at the negotiating table, but has no vote.

11 See Protocol 19 to the Lisbon Treaty on the Schengen opt-out. The UK participates in the police and judicial co-operation elements of the Schengen acquis, but not in the border control elements.

12 Scottish Salmon Growers Association Ltd v EFTA Surveillance Authority (E-2/94) [1994–95] EFTA Court Report 59; [1995] 1 C.M.L.R. 851 at [11]. At [13], the EFTA Court rejected the EFTA Surveillance Authority's argument that judgments of the Court of First Instance were not of direct relevance.

13 See for example Case COMP/M.7015 Bain Capital/Altor/EWOS. Two products that were subject to the transaction, namely tapioca starch (HS code 11.08.14) and fish feed (HS code 23.09.90) were not covered by the EEA Agreement. Consequently, the transaction, insofar as it related to those two products, was subject to merger control review in Norway. The Commission's decision only covered the EU with respect to tapioca starch and fish feed.

14 Annex XIV of the EEA Agreement extends the application of the following block exemption regulations to Iceland, Liechtenstein and Norway: (1) Regulation 330/2010 on the application of art.101(3) of the Treaty on the Functioning of the European Union (TFEU) to categories of vertical agreements and concerted practices (Vertical Agreements Block Exemption Regulation) [2010] OJ L102/1; (2) Regulation 316/2014 on the application of art.101(3) of the TFEU to categories of technology transfer agreements [2014] OJ L93/17; (3) Regulation 1218/2010 on the application of art.101(3) of the TFEU to certain categories of specialisation agreements (Specialisation Block Exemption Regulation) [2010]OJ L335/43; (4) Regulation 1217/2010 on the application of art.101(3) of the TFEU to certain categories of research and development agreements (Research and Development Block Exemption Regulation) [2010] OJ L335/36); (5) Regulation 169/2009 applying rules of competition to transport by rail, road and inland waterway (Rail, Road and Inland Waterway Block Exemption Regulation) [2009] OJ L61/1); and (6) Regulation 906/2009 on the application of art.81(3) of the Treaty to certain categories of agreements, decisions and concerted practices between liner shipping companies (consortia) (Liner Shipping Block Exemption Regulation) [2009] OJ L256/31, as amended by Regulation 697/2014 [2014] OJ L184/3.

15 EEA Agreement art.56(1)(c).

16 EEA Agreement art.56(1)(b).

17 The definition of turnover in art.3 of Protocol 22 to the EEA Agreement mirrors art.5 of Regulation 139/2004 on the control of concentrations between undertakings (EU Merger Regulation) [2004] OJ L24/24.

18 EEA Agreement art.56(2).

19 EEA Agreement art.57(2)(a) and Annex XIV.

20 EEA Agreement art.57(2)(b) and Annex XIV.

21 EEA Agreement art.6(5) of Protocol 24.

22 EEA Agreement art.6(4) of Protocol 24.

23 EEA Agreement art.6(1) of Protocol 24.

24 EEA Agreement art.6(1) of Protocol 24.

25 EEA Agreement art.6(1) of Protocol 24.

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