Administrative Reform of the Competition and Markets Authority following Brexit

Introduction

Among the multi-dimensional changes Brexit will trigger, an administrative reform is inevitable. The scope of timing of this reform, justifies the prediction that the changes to the largest branch of the UK government will be wide-ranging and fast-paced. Despite that, the debate on administrative challenges in the UK post-Brexit has been largely neglected. Although the Department for Business, Energy and Industrial Strategy (BEIS) has issued a number of technical notices explaining how various areas of law will be affected if the UK leaves the EU without a deal, including one on competition law, this does not even begin to cover the challenges facing the administration post-Brexit. This short blog will try to address some of the challenges awaiting one UK administrative body, namely the Competition and Markets Authority (CMA).

Dimensions and tensions of the administrative reform

Whatever the result of the EU-UK negotiations, the reform of administration and administrative law is unavoidable. One may distinguish three dimensions at which it will have to occur: internal organisation, external coordination and substantive law. The internal organisation covers the process of structuring the body of its procedures and resources. External coordination is related to relations between the body and other bodies, both at the national and international levels. Substantive legal issues are related to adaptation or creation of the legal framework. Such a three-dimensional reform will lead to tensions within each category, as well as between them. Tensions within different levels of the reform arise because administrative bodies pursue competing goals, such as efficacy, responsiveness, and coherence; thus, improvement in one area necessarily compromises the other objectives. Moreover, different dimensions impose limits on each other: for example, an increased external coordination may do not correspond to the ideal structure of internal organisation. Brexit will highlight both types of tensions and require to settle them in the new context. The tensions will eventually be resolved, either by administrative bodies or external forces, but the necessary compromises will give rise to an imperfect UK administrative settlement.

The administrative reform on the example of the CMA

It comes naturally that some administrative authorities will face challenges related to ‘un-Europeanization’ of the UK law more than others. The clashing dimensions of the reform are very well illustrated by the unavoidable reform of the CMA and hence the UK competition law, in particular of merger and State aid law. Indeed, while competition law is directly related to consumer welfare and the state of the UK economy, its content and enforcement are highly Europeanised. However, different fields of competition law will be impacted to a different extent.

Antitrust unchanged design

Anticompetitive conduct is regulated in Chapter I and Chapter II of the Competition Act 1998 (CA98), which mirrors Articles 101 and 102 of TFEU, and thus substantive changes should not be wide-ranging. Still, several adjustments will need to be made, in particular with regard to Section 60 CA98, according to which UK institutions must ensure consistency with EU law. According to the draft Withdrawal Agreement issued on 14 November 2018 (‘Withdrawal Agreement’), the UK courts must abide by the principle of consistent interpretation with the Court of Justice of the European Union (‘CJEU’) case law handed down until the end of the transition period and pay due regard to CJEU case law handed down after that date. Furthermore, it will be necessary to address the significant rise in the workload of the CMA, and thus introduce a reform of its internal organisation.

UK Merger control after Brexit

At present, national mergers with a Community dimension, which meet certain thresholds set out in the European Merger Control regulation must be scrutinised by the European Commission (Commission) and not the CMA. As Brexit will put an end to this division of competences, more mergers will be reviewed by the CMA under the Enterprise Act 2002, which create an issue of internal organisation in terms of increased workload. To manage its workload, the CMA has discretion not to refer a merger case if the market concerned is of insufficient importance to merit a ‘Phase II’ investigation, also known as the de minimis exception. Alternatively, the CMA could try to decrease its workload by means of procedural changes or increase its resources by way of internal reallocation of resources or legislative changes.

Moreover, Brexit may lead to certain situations in which the CMA and the Commission will examine mergers in parallel. Naturally, this urges for a solution at the level of external coordination. In particular, different outcomes of the investigations, as well as diverging remedies, raise transactional risks. Thus, it is recommended to use the referral mechanism in notified merger cases, and to enable pre-notification contacts of the merging parties with the Commission and the CMA.

Finally, Brexit will allow the UK government to extend the reach of public interest provisions. Indeed after Brexit, the UK might be able to permit a merger prohibited at the EU level, if it is considered to be in the public interest. However, a similar extension of the notion of the public interest is inadvisable, as it would create unpredictability for business.

The challenge of UK State aid

A more complicated situation arises with regard to State aid control after Brexit. Indeed, the EU will the most probably insist on the existence of UK State aid control as a requirement of a trading agreement. However, the UK law does not contain provisions corresponding to Article 107 TFEU, which means that the UK will have to create a legal framework for State aid control. The lack of appropriate provisions at the moment of Brexit would create significant legal uncertainty for undertakings involved in finished and ongoing State aid investigations. From the point of view of internal organisation, currently the CMA does not deal with State aid or have any powers to enforce it. However, it will become the competent public authority to enforce State aid rules after Brexit. While it is reasonable that the CMA should resume this competence post-Brexit, as the CMA has a great expertise, experience and competence in competition law and enforcement in general, State aid remains unknown ground to the CMA, and will require it to set up a new responsible unit.

Moreover, even though the CMA undoubtedly is an independent institution, State aid enforcement is a delicate matter, which will require the CMA to take action against UK governments. It is imaginable that this leads to tensions that will have to be either prevented or remedied. The political sensitiveness of State aid control, which is easier to deal with at the EU level, will therefore constitute a challenge in the new UK State aid enforcement.

Conclusion

Independent of the end result of negotiations between the UK and the EU, Brexit will necessitate a wide-ranging and fast-paced administrative reform. UK administrative bodies will face a reform characterised by key dimensions, within and between which tensions will likely arise. The inevitable reform of the CMA particularly illustrates these challenges, especially as regards merger and State aid control. While merger control will necessitate internal reorganisation and cooperation with the Commission, State aid law is a strong example of a completely new law, which will have to join the UK competition law design. Although the Withdrawal Agreement provides that pending competition and State aid issues concerning the UK or UK natural or legal persons shall continue to be handled by the EU and according to EU rules if they were initiated before the end of the transition period. In respect of State aid granted before the end of the transition period, for a period of four years after the end of the transition period, the Commission shall be competent to initiate new administrative procedures on State aid concerning the UK. Moreover, the Commission shall be competent after the end of that four year period for procedures initiated before the end of that period

*Senior Research fellow at the British Institute of International and Comparative Law and senior lecturer at University of Manchester.

**This blog summarises the arguments made in extensively in: TOMLINSON, J., & LOVDAHL GORMSEN, L. (2018) ‘Stumbling Towards the UK ’s New Administrative Settlement: A Study of Competition Law Enforcement After Brexit’ Cambridge Yearbook of European Legal Studies, 1-19. doi:10.1017/cel.2018.4