Competition (Amendment etc.) (EU Exit) Regulations 2019

Baroness Burt of Solihull Excerpts

Tuesday 4th December 2018 Lords Chamber

[The Parliamentary Under-Secretary of State, Department for Business, Energy and Industrial Strategy (Lord Henley) (Con)]

My Lords, the UK has a world-renowned competition regime, but currently the domestic system is highly integrated with the EU competition system. The primary aim of this SI, therefore, is to remove provisions in domestic legislation associated with being part of the EU competition system. While the draft withdrawal agreement with the EU sets out separation arrangements on competition, the Government are preparing for all contingencies. Should we leave the EU without an agreement in place, this statutory instrument will minimise the litigation risk for the Competition and Markets Authority and provide legal clarity and certainty for businesses and consumers; that is why the statutory instrument is before the House today.

The Secondary Legislation Scrutiny Committee has drawn this SI to the special attention of the House on the ground that it gives rise to issues of public policy likely to be of special interest. As the Scrutiny Committee correctly noted in its report, this statutory instrument makes amendments to the Competition Act 1998 and the Enterprise Act 2002, and makes provision for incorporating European block exemption regulations. I will set out the main changes made by the SI, including those raised by the Scrutiny Committee.

First, the Competition Act 1998 sets out prohibitions against anticompetitive conduct in the UK and empowers the CMA and sector regulators to investigate and take enforcement action against infringements of those prohibitions. The Competition Act, together with EU regulations, also empowers the CMA to investigate and take enforcement action against infringements of EU competition law and provides for investigation co-operation between the CMA, the European Commission and member states’ national competition authorities. This SI amends the Competition Act to remove the CMA’s power to investigate anticompetitive agreements under EU competition law, as it will investigate solely under UK law after exit.

The Scrutiny Committee noted that the SI makes provision for the continued application of pre-exit EU competition case law of the Court of Justice of the European Union after exit. The committee is referring to changes the Government have made to Section 60 of the Competition Act. Currently, Section 60 of the Competition Act provides that competition regulators and UK courts must interpret UK competition law in a manner consistent with EU competition law. The statutory instrument revokes Section 60, as it is inappropriate and contrary to the withdrawal Act to require UK courts to follow ECJ case law after exit. It introduces a new Section 60A, which provides that UK courts and regulators will continue to ensure consistency with pre-exit EU competition case law when interpreting UK competition law, but they may depart from that case law where appropriate in specified circumstances. This approach aims to provide consistency and clarity in the law for courts, regulators and businesses, which look to legal precedent when interpreting the law, while also allowing the competition regulators and UK courts to depart, where appropriate, from EU case law.

With respect to private damages claims, claimants can currently pursue follow-on claims in UK courts, based on enforcement decisions of the European Commission and the CMA. After exit, claimants will still be able to bring private damages claims in UK courts; however, UK courts will not be bound, as a matter of statute, by European Commission decisions. This approach aligns with the European Union (Withdrawal) Act, which provides that UK courts will not be bound by decisions of EU courts after exit.

Under the current system, the European Commission makes block exemption regulations, which exempt certain categories of agreements from EU competition law, where they are believed to have a neutral or beneficial effect on competition. Agreements which benefit from an EU block exemption are also exempt from UK competition law. At exit, all of the seven current block exemptions will be incorporated into UK law, as retained block exemptions. Agreements that meet the terms of the retained block exemptions will continue to be exempt from domestic competition law. This statutory instrument amends the retained block exemptions so that they operate effectively in domestic law. It also empowers the Secretary of State to vary or revoke the retained exemptions.

I turn to the Enterprise Act 2002, which contains the rules on mergers. Currently the CMA is responsible for investigating mergers to ensure that they do not have anti-competitive effects in the UK market. However, if a merger triggers the turnover thresholds set out in the EU Merger Regulation, it is reviewed by the European Commission, including the UK aspects of the merger. After exit, the EU Merger Regulation will no longer apply in the UK, and the UK dimensions of mergers will be reviewed solely by the CMA. The statutory instrument amends the Enterprise Act to remove references to the EU Merger Regulation and other provisions related to being part of the EU’s one-stop shop for merger clearance in the single market. This statutory instrument also makes transitional arrangements for CMA anti-trust and merger cases that are live at the point of exit, so that those cases can continue to be managed effectively.

Anti-trust law protects consumers from anti-competitive behaviour. Similarly, merger control is an important component of a healthy and growing economy. It is vital that we safeguard the legal framework that protects consumers and our competitive market. This statutory instrument achieves these goals by maintaining the strength of the UK’s current competition system, while making only those changes designed to separate the UK competition system from that of Europe in a no-deal scenario. I commend the regulations to the House.

[Baroness Burt of Solihull (LD)]

My Lords, unlike my noble friend Lord Kirkwood, I have not sat on the scrutiny committee so some of my questions may appear a trifle naive to more learned Members, for which I apologise in advance. I ask the Minister to bear with me.

The regulations address deficiencies in competition legislation arising from our exit from the EU. As I understand it, we will no longer be part of the EU competition system. Can the Minister say how this is likely to affect our ability to tender for EU contracts? Currently we do very well in tendering for and obtaining EU contracts. Am I correct in supposing that we will lose our ability to tender for EU contracts? If so, what estimate have the Government made of the loss of value that this will have on the UK economy? Perhaps the Minister can help me; there is no impact assessment because, according to the text, the SI is supposed to have no effect on private businesses and charities.

The regulations come into force on exit day. But when, if ever, will exit day be? Unless the very worst happens, presumably it will not be 29 March 2019. We understand that we are not going to crash out—that is not going to be allowed—but, on the legal information to which we have not been privy and on which they are voting right now in the other place, presumably exit day could be years away, if ever. The only way that the British people can know is to have a say on the deal that Mrs May has negotiated and vote to end the madness and remain.

We have the advice of the chief legal adviser to the EU that we could pull out of Brexit with no penalty right now. I appreciate that if Brexit continues to prevail, we have to have a plan. Having retained much existing EU law, we have to pick through the bits of legislation which will not apply or which are unlikely to work once we have left. These regulations relate to inconsistencies in competition law in the event of the worst possible piece of self-harm that the British people have done for generations—a no-deal Brexit.

The regulations relate to infringements of and exemptions from competition and merger law. Part 2 of the regulations is “Amendment of the Competition Act 1998”. Part 3 is “Amendment of the Enterprise Act 2002”. Part 4 is “Amendment of other primary legislation”. Part 5 is “Amendment of subordinate legislation”. Part 6 relates to amending and revoking retained EU law, and part 7 is “Saving and transitional provision”.

I am no legal expert, as I am sure has already become apparent to noble Lords, but the fact that no impact assessment has been produced because no significant impact on the voluntary or private sector is foreseen suggests to me that it is hoped that this is merely a tidying-up exercise. It may be technical, but I still fail to see why there is no impact assessment on what impact this competition crisis will have on our ability to trade and compete with our biggest market, indeed, the biggest single market in the world.

[Lord Berkeley (Lab)]

My Lords, my understanding is that these draft regulations will apply only if we crash out or similar with no deal at the end of March next year. As the noble Baroness said, there are some interesting questions, to which we need answers.

I should like to get some answers from the Minister about what happens to some of the cases that are being considered at present by either the CMA or the European Commission competition authorities. Such cases run for years. They may have started now, but they certainly will not finish. Presumably anything that starts before 29 March next year will continue to some conclusion by the competition authority in the Commission. Is there a time limit on that? How will the relationships between the UK parties, if you like, and the Commission and the other parties be handled in that transition period, which may go on for a great deal longer than any transition that the Prime Minister may be negotiating? Some of these competition cases go on for years.

One case I have got slightly involved in watching is between two railway manufacturing companies, Siemens and Alstom. Siemens has its head office in Germany and Alstom has its head office in France, I think. They have been proposing a merger of all their businesses for several years now. The European Commission has got to the stage of issuing something that is not technically an opinion, but seems to me to be an opinion, which suggests that a merger would be a bad idea for competition across Europe in the whole railway sector. The companies appear to have been trying to promote the merger as a way of preventing Chinese industries taking over everything in Europe, including the UK. Both companies have subsidiaries in the UK; some make trains, some make signalling and some do other things. If that merger went ahead on the continent—in Europe—could the CMA stop a merger between their subsidiaries in this country, or vice versa? How would it work? If they wanted to merge in this country, would the CMA’s decision apply in Europe?

Presumably, if any of this is to work at all, there has to be some communication between the CMA and the European Commission’s competition department on issues such as this. I would welcome a comment from the Minister as to how that conversation—it may be only a conversation—would happen and the extent to which a decision by one party would be binding on the other. I look forward to his comments.