01 July 2016

Uncertainty subject to future exit negotiations

The UK is currently part of an EU wide integrated competition law enforcement system covering anti-competitive agreements and practices and merger control. This system will remain while the UK negotiates its exit from the EU. Businesses, particularly those active in markets in other EU Member States, will face a period of uncertainty as to the position post-Brexit. This uncertainty arises from the fact that no one yet knows exactly what Brexit means in practical terms for particular policy areas such as competition law. This is especially the case given the closeness of the vote in favour of Brexit and the question of the extent to which that gives a mandate to those who want more rather than less separation. Accordingly, much will depend on the practical political answers that derive from the exit negotiations that the UK will need to have with the EU and the model chosen.

EEA membership model

This is referred to by some as the ‘Norwegian’ model. If the UK chooses this model, the UK would remain part of the European Economic Area (EEA) along with Norway, Iceland and Lichtenstein.  

Broadly speaking, if this happens, there will be few (if any) substantive changes to the competition rules which apply to UK businesses, although there will be some changes around the margins of the relevant procedures, as the EFTA Surveillance Authority may have a role in some matters rather than the European Commission. This would be the case for both mergers and anti-competitive agreements.

While this approach may make sense from an economic perspective, the main issue with the EEA model for the UK is potentially a political one, as the UK would be subject to the relevant rules, but would not have a seat at the table negotiating and deciding on those rules.

WTO membership only model

The UK's relationship with the EU would be the same as any other non-EU Member State.  In which case, we might anticipate a formal de-coupling of national competition law and national merger control from the EU regimes. This would probably involve the repeal of s.60 of the Competition Act 1998 which requires UK competition law to be interpreted consistently with EU competition law and a separation of UK merger control from the EU 'one stop shop' for transactions which have a broad and significant impact across a number of European countries. UK businesses would be subject to two distinct regimes: UK and EU.

Under this model, large multinational mergers would need to be reviewed both in Brussels and by the Competition and Markets Authority in the UK, which would create additional burdens on business, increase the risks of divergent outcomes and generally increase costs for those involved. Similarly, as regards anti-competitive agreements and practices, it may be that the UK would, over time, go its own way to a degree. For example, the UK's approach to vertical agreements in the early days of the Competition Act 1998 was that all vertical agreements other than resale price maintenance should be excluded from competition law prohibitions. However, in order to maintain consistency with the EU, this was withdrawn 10 years ago with the introduction of the EU’s Vertical Agreements Block Exemption regime which takes a more cautious approach to vertical agreements.

There may be a degree of co-operation between the UK and the EU enforcement agencies on competition matters, in the same way that the EU and US agencies currently cooperate to a certain extent, particularly as regards mergers that qualify for investigation under both regimes. However, this is something that would need to be negotiated and would develop over time.  

Bilaterally negotiated trade deal model

There is the possibility of some sort of middle way, which would involve the UK negotiating a bilateral deal with the EU such as Switzerland, Canada and Turkey have done. However, at the moment there is no clarity about what this would mean for UK business other than to anticipate that its results would be somewhere between the EEA and the WTO models considered above. It would also be much more complex for the UK to achieve.

Period of uncertainty

Even the timing of any changes is uncertain. We know that under Article 50 of the Treaty on the Functioning of the European Union exit negotiations are supposed to be completed within two years of it being triggered, but we do not know when the UK government will trigger Article 50. Given this two year period, and given that we are unlikely to have a new prime minister until the autumn at the earliest, it seems unlikely that any change will happen much before the end of 2018.

However, the only thing that is certain is that until there is a clear political direction, there will be very few answers to any of the uncertainties generated by the referendum result, and businesses will have to plan for the future with an eye on the various possible outcomes.


Key contact

Chris Worrall

Chris Worrall Partner

  • Head of Competition
  • Mergers and Acquisitions
  • Financial Services

Subscribe to news and insight

Burges Salmon careers

We work hard to make sure Burges Salmon is a great place to work.
Find out more