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Brexit: competition and State aid Contents

Chapter 7: Determining the UK’s future institutional framework

221.The exact shape of the UK’s post-Brexit institutional framework with regard to competition matters remains unclear, and subject to future policy decisions. Nevertheless, it is clear that Brexit—and the resultant repatriation of responsibilities from the EU—will have a significant impact on existing institutions with a statutory competition remit, as well as necessitating the creation of new ones. Determining the shape of this framework will require careful consideration of how to ensure the most appropriate and cost-effective use of public resources.

222.In this Chapter we examine the implications of Brexit for existing competition bodies, the CMA and the CAT. We also consider the development of a coherent post-Brexit institutional structure for competition matters encompassing, for example, the possible UK State aid authority (discussed in Chapter 6) and the Trade Remedies Authority proposed by the Government in its recent Trade Bill.

Resource implications for the CMA and the CAT

223.Barring a specific arrangement to facilitate continued participation, the loss of the ‘one stop shop’ regime (see Chapter 3) will increase the number of mergers reviewable in the UK. The CMA estimated that this might mean “an additional 30 to 50 Phase 1 mergers per year”, which could lead to “half a dozen or so additional Phase 2 cases”.249

224.In addition to increased merger reviews, Dr Coscelli estimated that UK authorities would assume responsibility for an additional five to seven large antitrust cases per year.250 Lord Currie explained that, similarly to mergers, these were also likely to be “much bigger and arguably more complex cases” than those investigated by the CMA hitherto.251

225.The CMA considered it “imperative” to have sufficient resources to deal with this anticipated caseload, to ensure there would be no “detriment to the quality of its investigations or its ability to undertake its other important functions, in particular conducting market investigations and consumer law enforcement”.252 Lord Currie told us that the CMA had been “fully engaged” both with BEIS and the Treasury, but emphasised that it could not be totally confident that the necessary resources would be put in place “until the cheque [was] actually signed”.253

226.As for human resources, Dr Coscelli said that the CMA was “quite successful in attracting talent, from both the private sector and other public sector bodies”, but recognised the salary levels the CMA could offer might present an issue. Ms Cardell suggested: “It is quite an exciting prospect for people to come to work at the CMA post-Brexit and get involved in the kind of cases we will be taking on”.254

227.The CAT also expected greater demand on its own resources post-Brexit, as an increase in the number of domestic decisions would mean a concomitant increase in the number of decisions subject to appeal before the Tribunal. The CAT noted the complexity of large antitrust cases and said that related appeals would likely make “heavy demands” on its work. Similarly, the loss of the ‘one stop shop’ would “significantly increase” judicial review of merger decisions.255

228.Ofwat told us that any resource constraints on the CMA could have a “knock-on impact” on the ability of the CMA to work with sector regulators—particularly on competition issues emerging in new markets, such as the business customer retail market in the water sector.256 On the other hand, Dr Steve Unger, Group Director and Board Member of Ofcom, welcomed the opportunity to be “more clearly part of the decision-making process in some key merger transactions and some key antitrust cases”.257

229.For a consumer perspective, Ms Normand told us it would be important to ensure the CMA was “well-resourced” as—even prior to discussions on the impact of Brexit—Which? had had concerns that “the CMA’s role in using its consumer powers and enforcing them is crowded out by some of the other activity it undertakes on antitrust and other matters”.258

Possible solutions

230.Hogan Lovells did not support a reallocation of the CMA’s present responsibilities in order to manage an increased caseload after Brexit. They told us it would be important to “ensure consistency and predictability” for businesses.259

231.The BICL instead suggested a number of procedural changes, including changing the CMA’s ‘duty to refer’ a merger found to substantially lessen competition to a Phase 2 investigation to a ‘discretion to refer’. The BICL also thought that the CMA could investigate “fewer smaller mergers” or increase review thresholds. We note that such an approach would appear to be at odds with the Government’s recent Green Paper on national security and infrastructure investment (for which see Chapter 5).260

Future institutional arrangements

The Trade Remedies Authority

232.In October 2017 the Department for International Trade published a paper on future UK trade policy, announcing that, as part of operating an independent trade policy after Brexit, the Government would put in place a trade remedies framework, to protect UK industry against unfair and injurious trade practices, such as state-assisted subsidies and dumping. Currently trade remedies are within the competence of the EU, and investigations, decisions and monitoring of trade remedy measures are performed by the Commission on behalf of all Member States. The policy paper states that, after the UK leaves the EU, these functions will be taken on by a new, independent, trade remedies investigating authority.261

233.In November 2017 the Government introduced a Trade Bill in the House of Commons, which provides for the establishment of a Trade Remedies Authority (TRA) and sets out the body’s broad remit.

Box 3: Extract from the Trade Bill relating to the role of the Trade Remedies Authority (TRA)

1.The TRA must provide the Secretary of State with such advice, support and assistance as the Secretary of State requests in connection with—

(a)the conduct of an international trade dispute,

(b)functions of the Secretary of State relating to trade, and

(c)functions of the TRA.

2.Advice, support and assistance requested under subsection (1) may include, among other things—

(a)analysis of trade remedy measures imposed in countries or territories other than the United Kingdom, and

(b)analysis of the impact of such measures on producers and exporters in the United Kingdom.

Source: Trade Bill, clause 6 [Bill 122 (2017–19)]

234.Given the relevance of these developments to our inquiry, we wrote to the Secretary of State for International Trade, Rt Hon Liam Fox MP, requesting further information about the remit and resource requirements of the TRA. We also asked whether the TRA or the Secretary of State would have the final say on what trade remedy measures were applied following TRA investigations.

235.In his response, Dr Fox told us that the remit of the proposed TRA was based on WTO rules, and that it would be operational in time to provide UK companies with continuous access to a trade remedies service as the UK leaves the EU. He noted that the TRA would be an executive, non-departmental public body of the Department for International Trade. It was important for the TRA to be an arm’s-length body, as this would demonstrate and preserve its impartiality, and give businesses confidence in its investigative processes. The estimated cost of the TRA would be £15–20 million annually. Finally, he indicated that the decision-making process through which trade remedies will be investigated and applied—including the role of Government Ministers in this process—would be set out in a forthcoming Bill on taxation and cross-border trade.262

236.The Taxation (Cross-Border Trade) Bill was subsequently introduced in the House of Commons on 20 November 2017. The Bill indicates that ultimate decision-making power on trade remedies will reside with the Secretary of State for International Trade, who, if they accept a recommendation by the TRA on the imposition of trade remedies, will be responsible for making provision to give effect to that recommendation.263

237.Given the timing of the inquiry and the introduction of the Trade Bill, we received little evidence on what relationship the proposed TRA might have with the CMA and other institutions within the UK’s existing competition framework. There would also likely be interactions between the roles of the TRA and any new domestic State aid authority (discussed in Chapter 6), particularly with regard to trade dispute cases. With related and possibly overlapping remits, clear channels of communication and mechanisms for cross-working will be needed to ensure all these institutions operate efficiently and effectively alongside each other.

Other stakeholders

238.Several witnesses saw an opportunity to involve other stakeholders, without a statutory competition remit, in the design and the development of this framework. COSLA, for example, told us that the role of local government had “scarcely featured” hitherto, and that the UK’s future domestic competition and State aid regime should be designed “in partnership between central, devolved and local governments”.264 Which? called on the Government to “pay greater attention to consumer interests”, and involve consumer bodies in determining the UK’s approach to competition policy after Brexit.265

The global competition community

239.As well as establishing a joined-up domestic institutional framework, UK bodies such as the CMA and TRA will also need to build on existing relationships and develop new links with other competition and trade authorities around the world. As the only existing structure, evidence received in this inquiry focused on the implications of Brexit for the CMA in this regard.

240.We heard concern over the prospect of the CMA losing its place in the ECN, to the detriment of UK competition enforcement.266 On the other hand, witnesses were generally positive on the outlook for the CMA’s future influence on global competition policy, pointing out that the CMA would continue to be a member of other important international fora, such as the International Competition Network (ICN), the OECD, and the United Nations Conference on Trade and Development (UNCTAD).267

241.In February 2017, Dr Coscelli gave a speech on the CMA’s role in the context of Brexit, stating:

“It is my strong hope and expectation that the CMA will continue to be a key member of the international competition and consumer law enforcement community and as such will seek to continue to maintain and develop strong relationships with other enforcers, both within Europe and beyond”.268

Dr Coscelli emphasised that the CMA frequently met “counterparts around the world to discuss issues of mutual interest, and to build personal links”. He noted that the CMA would continue to “contribute to and influence the development of global policies” through these networks, and envisaged that the CMA would do so “even more directly—post-Exit”.269

242.The Law Society of Scotland told us that the UK was “highly respected” within international competition fora, while Hogan Lovells thought it likely that the CMA would continue to have “good cooperative relationships with other agencies and command influence over global competition policy”.270

The Government’s position

243.The Minister said that the Government understood the implications of regaining jurisdiction over antitrust and merger cases after Brexit, and that this would “undoubtedly” lead to increased demands on the CMA’s resources.271

244.Ms James noted the CMA’s estimates on its additional caseload after Brexit, and acknowledged that this was likely to involve “larger and more complex [cases] than many … the CMA currently investigates”. She noted that the Chancellor had committed £250 million to help departments and partner bodies prepare for Brexit, and that the Government would continue to “work with the CMA with regard to its future resource requirements as the negotiations proceed”.272

245.We also asked the Minister how many additional cases might result from the Government’s recent proposals on public interest criteria for intervention in merger cases. She informed us that the Government did not expect large numbers of cases to be scrutinised under these proposals, and that it would bring forward an impact assessment in due course.273

246.The Minister said that it was “important to establish clarity” over future competition arrangements, and that the Government had been “working closely with the CMA and sector regulators”.274 BEIS also confirmed that the Government had no plans to give more powers to sector regulators: “The current allocation of competition responsibilities … has many benefits, in terms of consistency, clarity, expertise and efficiency”.275

247.When asked about the relationship between the TRA, the CMA, and any UK State aid authority, the Minister told us she was sure that the TRA would have a “close relationship with the CMA and bodies in that field”, but with “a distinct role and focus”.276

248.In terms of the CMA’s international influence, BEIS said that the CMA had “a strong track record of effective engagement” in the development of global competition policy through international networks, which the Government would expect the CMA to maintain after Brexit.277

Conclusions

249.As a direct consequence of Brexit, the CMA will assume responsibility for a greater number of large and complex cases, and is likely to require more funding and more staff to meet this additional demand. It will be imperative to ensure that the CMA is appropriately resourced—and has staff with the right skills and experience in place—in good time to prepare to take on its post-Brexit caseload. We welcome the Government’s current high levels of engagement with the CMA on this issue, and call on the Government to confirm its resourcing plans for the CMA and other affected institutions, like the CAT, as soon as possible.

250.As well as existing bodies, the UK’s future institutional framework for competition matters will involve a number of other organisations, including the proposed Trade Remedies Authority (TRA), and possibly a new State aid authority. It will be important to ensure that all these organisations are sufficiently resourced, have clearly defined remits, and that they work together to deliver a cohesive and effective competition regime. The Government should also bear in mind the need to avoid duplication and ensure that public resources are used cost-effectively.

251.In developing this regime, the UK will have the opportunity to design a system that more closely reflects domestic needs and priorities, and is more inclusive of the devolved administrations and local authorities, as well as other stakeholders such as businesses and consumer groups. We urge the Government to make full use of this opportunity and launch a consultative process, involving all relevant stakeholders, to inform its decisions and any related legislation. We hope this report will be a useful contribution to that endeavour.

252.Finally, we were encouraged by witnesses’ confidence that Brexit should not affect the UK’s influence in international networks such as the International Competition Network (ICN), OECD, and United Nations Conference on Trade and Development (UNCTAD). We urge the CMA to maintain, and increase, its engagement in these fora to help enhance its influence in the global competition community post-Brexit. It will also be important for the TRA, once established, to build relationships with international networks and other trade authorities.


249 Written evidence from the Competition and Markets Authority (CMP0002)

In the financial year ending 31 March 2017 the CMA reported issued nine civil enforcement infringement decisions and £100 million in fines. For mergers, it completed 57 Phase 1 reviews. Of these, substantial lessening of competition was found in 14; five were referred to Phase 2 and undertakings in lieu were accepted in the remaining nine. Competition and Markets Authority, Annual Report and Accounts 2016/17 (12 July 2017): https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/628984/cma-annual-report-accounts-16-17-web-accessible.pdf [accessed 5 December 2017]

250 Q 1 (Dr Andrea Coscelli)

251 Q 1 (Lord Currie)

252 Written evidence from the Competition and Markets Authority (CMP0002)

253 Q 2Q 2 (Lord Currie)

254 Q 6 (Dr Andrea Coscelli and Sarah Cardell)

255 Written evidence from the Competition Appeal Tribunal (CMP0042)

256 Written evidence from Ofwat (CMP0035)

257 Q 15 (Dr Steve Unger)

258 Q 44 (Caroline Normand)

259 Written evidence from Hogan Lovells (CMP0027)

260 Written evidence from the British Institute of International and Comparative Law (CMP0010)

261 Department for International Trade, Preparing for our future UK trade policy (9 October 2017): https://www.gov.uk/government/publications/preparing-for-our-future-uk-trade-policy/preparing-for-our-future-uk-trade-policy [accessed 28 November 2017]

262 Letter from The Rt Hon Dr Liam Fox MP, Secretary of State for International Trade to the Chairman of the House of Lords EU Internal Market Sub-Committee, 15 November 2017: http://www.parliament.uk/documents/lords-committees/eu-internal-market-subcommittee/15-Nov-2017-DIT.pdf [accessed 28 November 2017]

263 Taxation (Cross-border Trade) Bill, section 13 [Bill 128 (2017–19)]

264 Written evidence from COSLA (CMP0033)

265 Written evidence from Which? (CMP0034)

266 Written evidence from the Centre for Law, Economics and Society at UCL (CMP0032). See also written evidence from Hausfeld & Co LLP (CMP0018)

267 See for example written evidence from Baker McKenzie LLP (CMP0026)

268 Dr Andrea Coscelli, Speech on The CMA and its place in a changing world, 4 February 2017: https://www.gov.uk/government/speeches/andrea-coscelli-on-the-cmas-role-as-the-uk-exits-the-european-union [accessed 5 December 2017]

269 Ibid.

270 Written evidence from the Law Society of Scotland (CMP0036) and Hogan Lovells (CMP0027)

271 Q 47 (Margot James MP)

272 Q 47 (Margot James MP)

We note that following our evidence session, the Chancellor committed an additional £3bn over the next two financial years for Brexit preparations in the Autumn Budget 2017. Philip Hammond MP, Speech on the Autumn Budget 2017, 22 November 2017: https://www.gov.uk/government/speeches/autumn-budget-2017-philip-hammonds-speech [accessed 5 December 2017]

273 Letter from Margot James MP, Minister for Small Business, Consumers and Corporate Responsibility, to the Chairman of the House of Lords EU Internal Market Sub-Committee, 20 November 2017: http://www.parliament.uk/documents/lords-committees/eu-internal-market-subcommittee/20%20Nov%202017%20-%20Letter%20to%20Chairman%20from%20Margot%20James%20MP%20on%20Brexit%20competition.pdf [accessed 29 November 2017]

274 Q 46 (Margot James MP)

275 Written evidence from the Department for Business, Energy and Industrial Strategy (CMP0041)

276 56 (Margot James MP)

277 Written evidence from the Department for Business, Energy and Industrial Strategy (CMP0041)




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