Chapter 4: Transitional arrangements
86.The need for transitional arrangements—to establish a bridge between the UK’s current EU membership and its future trading relationship with the EU—has been a common theme of many of the Brexit-related reports produced by this Committee. The desirability of such an arrangement was acknowledged by the Prime Minister during her Lancaster House speech in January 2017. In September 2017, she called for a two-year “period of implementation” to allow time to “prepare and implement the new processes and new systems” that will underpin the future UK-EU relationship.93
87.We discussed the potential for confusion regarding the meaning of ‘transition’ in our recent report: Brexit: deal or no deal. We noted that the UK Government commonly referred to a period of ‘implementation’ rather than ‘transition’, although both terms suggest a similar concept of gradual adaptation to an agreed future UK-EU relationship. In her Florence speech, however, the Prime Minister said that the framework for this period would be “the existing structure of EU rules and regulations”, where “the same rules and laws will apply on the day after exit as on the day before”. This suggests that the two-year transition (or implementation) period, if agreed, would be more one of ‘standstill’ than phased change.94
88.This Chapter discusses the need for transitional arrangements to cover the point at which the UK assumes regulatory independence and jurisdiction over competition matters—referred to as the ‘time (or point) of Brexit’—whether this takes place on 29 March 2019 or at the end of a ‘standstill’ period.
Transitional issues
89.With regard to competition matters, witnesses told us that transitional arrangements would primarily be needed to address issues of jurisdiction. Dr Andrea Coscelli, Chief Executive of the CMA, warned that, if these issues were not resolved, there could be legal loopholes, with some investigations ‘falling through the cracks’. In such circumstances, he said, UK consumers would “pay the price”.95
Cases ‘live’ at the point of Brexit
90.Professor Michael Waterson, Professor of Economics at the University of Warwick, highlighted the issue of competition cases within the current competence of the EU that were “’in flight’ at the appointed time for separation”.96 The CMA noted that this would include both ongoing antitrust cases and mergers which had been notified but not completed at the point of Brexit, stressing that transitional arrangements would need to confirm whether these cases were investigated and resolved by the Commission or by the CMA.97
91.UKSALA pointed out that a similar issue would arise in relation to State aid cases involving the UK which were still being investigated by the Commission, or had appeals pending before the EU Courts, at the time of Brexit.98 The CLLS Competition Law Committee observed that the UK and EU would need to decide whether these cases could “continue to judgment and appeal”, and also address “the consequences of a subsequent remittal of a case for redecision by the Commission”.99
Cases relating to pre-Brexit activities
92.The CLLS Competition Law Committee told us that Commission investigations into serious anti-competitive conduct were frequently started towards the end of the limitation period during which the EU can impose fines for anti-competitive conduct, and that the entire process of investigation through to decision-making could take “in excess of 10 years in itself, with civil damages claims potentially following after that.” Consequently, there would be a significant period post-Brexit during which the Commission could discover cases relating to pre-Brexit anti-competitive conduct, and during which it would “envisage current co-operation and enforcement rights remaining in place”.100 The CAT suggested that these cases would most commonly involve cartels, but could also encompass cases relating to abuse of dominance.101
93.Eversheds Sutherland (International) observed that a similar situation could arise in relation to State aid granted pre-Brexit, suggesting that transitional arrangements would need to clarify whether, post-Brexit, the Commission had the right to “require the recovery of State aid which would have been deemed to have been unlawful under EU State aid rules”.102
The status and enforcement of pre-Brexit commitments, remedies and decisions
94.The CLLS Competition Law Committee questioned who would be responsible for enforcing commitments, non-monetary obligations, or remedies affecting UK companies which the Commission had taken into account in decisions on antitrust and merger cases taken prior to Brexit.103
95.As discussed in Chapter 3, witnesses wanted clarity on the application of Commission decisions in the UK, both during transition and beyond, particularly in relation to private damages cases. The CAT, for example, told us that, if this issue was not addressed:
“The defendant to a claim for compensation would be able to argue that the Commission decision was wrong, which would hugely increase the burden on those seeking compensation and doubtless deter many from doing so”.104
96.Professor Andrea Biondi, Professor of European Union Law at King’s College London, told us it would also be important to clarify the status of Commission decisions in relation to State aid, especially where the Commission had approved the compatibility of the aid.105 UKSALA noted that these compatibility decisions were often subject to conditions, observing that transitional arrangements would need to specify the ongoing applicability of these conditions in the UK post-Brexit, and who would be responsible for enforcing them.106
Possible solutions
Antitrust and merger control
97.Dr Coscelli told us that the CMA was “quite relaxed” about the balance of jurisdiction between it and the Commission during any transition period, although Sarah Cardell, General Counsel at the CMA, acknowledged there might be a “certain efficiency” if cases underway at the point of Brexit stayed with the agency already leading the investigation.107
98.The CAT warned that a lack of clarity regarding jurisdiction during the transitional period could lead to “disputes as to which actions or effects [were] properly attributable to the period before and the period after the change in jurisdiction”, but did not propose a specific solution.108
99.Prof Whish thought that the Commission should continue to have jurisdiction over cases it had opened before Brexit.109 The CLLS Competition Law Committee agreed, but emphasised the need to clarify when proceedings would be considered “formally commenced”, particularly in relation to merger transactions, which involved a lengthy pre-notification process, with “a number of regulatory milestones”. In this situation, the CLLS Competition Law Committee considered that the Commission should retain jurisdiction over mergers which met the EUMR ‘European dimension’ threshold, and where the pre-notification process had begun before Brexit.110
100.The CLLS Competition Law Committee acknowledged that an agreement to draw a line at the point of Brexit would not allow the Commission subsequently to assert jurisdiction over pre-Brexit anti-competitive behaviour that was identified only after the UK’s withdrawal. Nonetheless, they suggested this could be a “suitable compromise”, given the Government’s position on the authority of the CJEU in the UK after Brexit.111
101.The CLLS Competition Law Committee argued that UK parties should have the same procedural rights as parties in EU Member States for any cases where the EU retained jurisdiction during transition, including rights of representation and legal professional privilege. They also thought that UK judges should remain members of the CJEU when hearing such cases during the transitional period.112
102.Baker McKenzie thought that commitments on antitrust cases concluded under Regulation (EC) 1/2003 should continue to apply post-Brexit, and suggested that the CMA should have powers to enforce these commitments in UK courts. In relation to mergers which had been cleared under the EUMR before Brexit subject to remedies, Baker McKenzie suggested that the Commission should continue to have jurisdiction to monitor and enforce those remedies.113
State aid
103.Rhodri Thompson QC, Christopher Brown, Nicholas Gibson, and Anita Davies—barristers specialising in UK and EU competition law—suggested that transitional issues relating to State aid should be relatively straightforward to resolve, as such cases involved discrete decisions and transactions, rather than ongoing infringements.114
104.Eversheds Sutherland (International) anticipated a situation where the EU required full compliance with its State aid rules for the duration of any transitional period. But this would only delay the issue: questions over the ongoing applicability of Commission State aid decisions, and the Commission’s ability to review and recover aid granted in the UK pre-Brexit that was subsequently deemed unlawful, would still “ultimately become relevant at the expiry of that period”.115
The importance of early clarity
105.Prof Maher Dabbah told us that, regardless of the specific arrangements of any implementation period, it should be underpinned by the “key principle of continuity and a smooth transition from the pre- to the post-March 2019 period”.116
106.Trustonic was clear that “businesses do not want to adapt twice to Brexit”, and emphasised that any transitional arrangement which was agreed at the last minute, and which gave way to a new regime shortly afterwards, would result in higher costs for businesses.117
Antitrust and merger control
107.The CMA told us that an agreement on transitional arrangements should be concluded “as soon as possible to maximise certainty for businesses and their advisors”. This would be particularly important for businesses considering mergers in 2018 or 2019, where the period of review under current EUMR arrangements would span the point of Brexit.118 The CLLS Competition Law Committee warned: “In the run up to Brexit, there will be numerous transactions in contemplation which will face considerable uncertainty if the jurisdictional position between the UK and EU is uncertain”.119 Vodafone told us it was “completely unclear” what, if any, transitional arrangements would apply to these cases, and suggested that this could lead to a “significant ‘cooling’ effect on merger activity”.120
State aid
108.The East of England European Partnership told us:
“It is important that local authorities and business communities have continuity, at least, in the immediate period following Brexit. In terms of state aid policy this would allow businesses … to commit significant resources to … tendering activities safe in the knowledge that the rules of the game will be consistent in the short-term”.121
109.COMBAR warned that uncertainty around transitional arrangements for State aid jurisdiction and enforcement could significantly delay infrastructure projects, if private sector investors were not clear what regime would be applied to the project before making an investment decision.122
UK and EU position papers
110.Both the EU and the UK have published initial position papers regarding ongoing judicial and administrative proceedings at the point of Brexit.
Box 1: Extracts from the EU’s position paper on Ongoing Union judicial and administrative proceedings
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In relation to proceedings before the Court of Justice, the Withdrawal Agreement should ensure that: (1)The United Kingdom’s withdrawal as such does not deprive the Court of Justice of its competence to adjudicate in proceedings which are pending on the withdrawal date … (2)The Court of Justice is competent to adjudicate in preliminary references submitted by courts in the United Kingdom after the withdrawal date relating to facts that occurred before the withdrawal date, as well as for infringement procedures relating to such facts, instituted … against the United Kingdom after the withdrawal date. (3)Judgments of the Court of Justice given before the withdrawal date as well as judgments given in proceedings mentioned under (1) and (2) have binding force in the United Kingdom after the withdrawal date and are enforceable there under the same conditions … In relation to administrative procedures before the Union institutions, bodies, offices and agencies, the Withdrawal Agreement should ensure that: (4)The United Kingdom’s withdrawal as such does not deprive Union institutions, bodies, offices and agencies of their competence to conduct administrative procedures pending before them on the withdrawal date … Such procedures include, for example, state aid investigations by the Commission … (5)The Union institutions, bodies, offices and agencies are competent under the same conditions as before the withdrawal date to start and conduct, after the withdrawal date, administrative procedures … relating to facts that occurred before the withdrawal date. |
Source: European Commission, Position paper on Ongoing Union Judicial and Administrative Procedures (12 July 2017): https://ec.europa.eu/commission/sites/beta-political/files/essential-principles-ongoing-union-judicial-admin-procedures_en_0.pdf [accessed 23 November 2017]
Box 2: Extracts from the UK’s position paper on Ongoing Union judicial and administrative proceedings
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The UK has made clear that leaving the EU will end the jurisdiction of the CJEU in the UK … At the same time, the UK is committed to minimising uncertainty and disruption for individuals or businesses, including that arising from changes in the treatment of cases pending at the time of withdrawal … The UK recognises that beyond a certain point in proceedings, where considerable time and resources have been invested in CJEU proceedings, it may well be right that such cases continue to a CJEU decision. Detailed technical issues would need to be resolved, and the UK will seek to agree with the EU:
… The UK does not consider that the CJEU should remain competent to rule on cases on which it has not been seized before the day of withdrawal, even where the facts arose before withdrawal. This would lead to an uncertain environment in which it would be impossible to predict how long the CJEU would continue to issue judgments in respect of the UK … It is important that there is agreement between the UK and the EU as to the precise administrative procedures that should be within scope of any discussions… Examples of administrative procedures that may be in scope include the following:
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Source: HM Government, Ongoing Union judicial and administrative proceedings position paper (13 July 2017): https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/627910/FINAL_OFF_SEN_Position_paper_HMG_Ongoing_Union_judicial_and_administrative_proceedings_Position_Papers_FINAL_120717__2___1_.pdf [accessed 5 December 2017]
111.The CLLS Competition Law Committee highlighted key differences between the UK and EU papers. The EU envisaged the EU institutions retaining jurisdiction over any court cases and administrative procedures that were ongoing at the point of Brexit, as well as those which arose post-Brexit relating to facts or activities that occurred while the UK was still a member of the EU. On the other hand, the UK paper invited negotiation on these issues, “but [did] not reveal where the UK would wish to end up”.123
112.While the Law Society welcomed the Government’s recognition that transitional arrangements would be needed for antitrust and mergers proceedings, EEF warned: “The UK’s rejection of any role of the CJEU after Brexit … excludes any straightforward form of enforcement”.124
The Government’s position
113.BEIS acknowledged that some cases would have started but not concluded at the point of Brexit. They confirmed that “the question of appropriate arrangements for handling these cases, including the jurisdiction which will apply, is within scope of the negotiations concerning UK exit from the EU”.125
114.The Minister, Margot James MP, told us that the Government had discussed cases live at the point of Brexit—and cases beginning after the UK’s withdrawal but related to pre-Brexit conduct—with the EU, but did not provide any further detail on the UK’s position. Ms James said that the Government’s “most important objective [was] to get some clarity so that businesses know which agency handles which issue”.126
115.Chris Blairs, Deputy Director for Competition Policy at BEIS, emphasised that he could not provide details on the content of live negotiations, but confirmed that discussions were taking place on “technical” issues such as “jurisdiction over cases, at what point an investigation starts and on what facts”.127
116.The Minister also declined to comment on “how State aid [rules] might be applied in the hypothetical case that [the UK got a] transition period agreed”, but she confirmed that the Government had held “preliminary discussions for the arrangements for State aid with the EU”. When pressed, Ms James told us the issue was “definitely exercising those involved in the negotiations, without a shadow of a doubt”.128
Conclusions
117.Negotiations on any transition (or implementation) period for the UK’s withdrawal from the EU need to be resolved to gain clarity on exactly when the UK will completely withdraw from the EU’s competition regime. Nonetheless, whether in March 2019 or at the end of a two-year period where EU rules and regulations remain largely in force, arrangements will be necessary to manage EU court cases and administrative procedures which are ‘live’ at the point of this transition, including competition cases. We welcome the Government’s recognition of the necessity of such arrangements, and expect the Article 50 withdrawal agreement to include provisions to ensure continuity in the handling of such cases.
118.We note the differing positions outlined in the EU and UK position papers on ongoing Union judicial and administrative proceedings, particularly with regard to the jurisdiction of the CJEU post-Brexit, which may complicate the process of reaching a transitional agreement on competition matters.
119.We recognise the Government’s ambition to provide clarity for businesses on these issues, but note that businesses are likely to already be planning future merger transactions and investment projects that will span, or occur after, the point of Brexit. We urge the Government to come to an early agreement with the EU on jurisdiction over competition cases during any transition period, to provide certainty for businesses and to ensure that no cases ‘fall through the cracks’ during this time, to the cost of UK consumers.
120.We support the Government’s ambition to reach at least an outline agreement with the EU on a transition (or implementation) period, including competition matters, in the first quarter of 2018. Any transitional agreement on competition issues should ensure continuity with current arrangements, so that businesses are not faced with the additional complexity and cost of having to adapt to the implications of Brexit twice.
93 Prime Minister Theresa May, Speech on the Government’s negotiating objectives for exiting the EU, 17 January 2017: https://www.gov.uk/government/speeches/the-governments-negotiating-objectives-for-exiting-the-eu-pm-speech and Prime Minister Theresa May, Speech on a new era of cooperation and partnership between the UK and the EU, 22 September 2017: https://www.gov.uk/government/speeches/pms-florence-speech-a-new-era-of-cooperation-and-partnership-between-the-uk-and-the-eu [accessed 23 November 2017].
94 European Union Committee, Brexit: deal or no deal (7th Report, Session 2017–19, HL Paper 46), Chapter 3
100 Written evidence from the Competition Law Committee of the City of London Law Society (CMP0017). The limitation period for the EU to impose fines for anti-competitive conduct is five years from the cessation of the conduct in question; a period which is ‘interrupted’ when the Commission or a Member State undertakes any action to investigate an infringement and suspended for the duration of any appeals before the EU Courts.
102 Written evidence from Eversheds Sutherland (International) LLP (CMP0024). EU State aid rules specify a ten-year limitation period for the Commission to investigate State aid measures which should have been notified but were not.
111 Ibid.
112 Ibid.
114 Written evidence from Rhodri Thompson QC, Christopher Brown, Nicholas Gibson, and Anita Davies (CMP0020)