The consequences of a Brexit on the applicable competition and trade regimes in the UK will depend on the terms of the future UK/EU relationship. It is an open question as to whether post-Brexit, the UK will generally align itself with the EU, or undertake an independent path. There is a broad assumption that the UK will repeal the European Communities Act 1972 (“ECA”) and so no longer be obliged to follow EU law. However, it is possible the UK may choose to retain some EU laws.
Assuming the ECA is repealed, the English courts and the UK Competition & Markets Authority (CMA) would no longer be bound to follow and give precedence to EU law over national law. However, EU competition law applies to all companies operating in the EU, irrespective of where they are based. Post-Brexit, any UK businesses trading in the EU Member States will continue to be subject to EU competition law.
In addition, the UK has its own national competition laws which are closely modelled on EU rules. Businesses will therefore need to continue to ensure that their agreements and practices are UK and EU competition law-compliant.
While a Brexit is unlikely to change the substantive application of competition law in the UK, there will be an increased regulatory burden for UK business. Anti-competitive conduct that has an effect in the UK and also the EU may be investigated by both the CMA (for breach of UK law) and the European Commission (for breach of EU law) – which means that an infringing company could be subject to double penalties.
There will also be increased red tape with regard to merger control. The UK would no longer be part of the EU “one stop shop” for merger control. At present, if a deal is notified to the European Commission, it does not need to be separately notified to the national competition authorities of the EU. If the UK leaves the EU, the EU and UK merger control regimes would run in parallel so that a transaction that meets the EU merger notification thresholds may also separately be notifiable to the CMA.
The UK would no longer be subject to the EU State Aid rules which means that the UK government could provide certain subsidies and tax breaks to UK companies without having to notify the European Commission.
The UK is currently part of the EU customs union, which means that businesses in one Member State can sell goods to and buy goods from other Member States without having to pay customs duties or other charges, irrespective of the country of origin of those goods.
Post-Brexit, the UK will lose the benefit of duty-free trade in goods and liberalised access to service markets with the EU and all other major trading partners. Goods which are indirectly imported into the UK via the EU would become subject to customs duties. The re-imposition of tariff barriers would make importing from the EU, and from certain third countries, more costly.
The UK would also likely be subject to increased administration and compliance procedures when exporting into the EU, which in turn will increase the cost and reduce the efficiency of trading with the EU.
In addition, the UK presently benefits from a number of free trade agreements (FTAs) between the EU and certain third countries which allow goods to be imported into the EU at a lower or nil rate of customs duty. This benefit will be lost and the UK will need to individually negotiate its own FTAs – which might be on less favourable terms than the existing FTAs with the EU and will likely take many years and resources to negotiate.
The UK will also likely lose the benefit of FTAs which are currently being negotiated with the EU, such as TTIP.
Post-Brexit, the UK would also need to decide on its sanctions policy and whether to repeal current EU sanctions legislation and forge its own position, or to continue to follow the EU in its stance towards sanctioned countries. The UK is a permanent member of the UN Security Council, so would continue to influence policy decisions at a UN level in the event of a Brexit.
Sam Mobley and Ross Denton are partners at Baker & McKenzie