Competition Law in EU Free Trade and Cooperation Agreements – and what the UK can Expect after Brexit

Regional cooperation in competition matters can reduce the complexity created by the cumulative unilateral application of more than 130 competition law regimes in the world today. Brexit attempts to buck this trend with its wish to revert to the conception of a largely unshared sovereignty of the 19^th century. Time will tell how this approach fares in the economy of the 21^st century. What is clear is that the UK has to negotiate cooperation agreements in competition matters promptly if it does not want to fall out of the loop completely on ‘Exit Day’.

The development of global supply chains has transformed international trade. For competition law enforcers, this means that unilateral extraterritorial enforcement becomes more frequent and more difficult. Indirect purchasers may find that they have been harmed by an overcharge passed on through the supply chain from a cartel of upstream suppliers, as, for example, the TFT/LCD saga has shown, especially the original 7th Circuit decision (vacated on 1 July 2014) and the eventual 7th Circuit decision (also compare the European Commission’s decision as well as the appeal decisions in InnoLux and LG Display). The first question under public international law is whether these effects are sufficiently ‘direct’ to justify extraterritorial enforcement under the qualified effects test: see, on the one hand, the Opinion of AG Wathelet in InnoLux (paras 35–68) and, on the other hand, the Opinion of AG Wahl in Intel (para 292 with fn 180); perhaps the imminent CJEU judgment in Intel will bring some clarity. The second question is whether personal jurisdiction over the infringers can be established. Even if these hurdles can be overcome, there remains the problem of enforcement jurisdiction: powers to investigate and sanction are strictly territorial. The involvement of states in the anti-competitive conduct complicates things further (as, for example, the Vitamin C Litigation in the US demonstrates; see the 2nd Cir. decision and the Scotus Blog’s case page on the pending certiorari petition).

Efforts to introduce a multilateral solution have failed, from the Havana Charter to the WTO Doha Round. Instead, international cooperation through bilateral agreements has sought to alleviate the complexity caused by the enforcement gaps and enforcement overlaps created by the cumulative unilateral application of more than 130 competition law regimes (see the OECD’s Inventory on international cooperation agreements).

One way to reduce the complexity is to move towards regional clusters with internally intense cooperation, and a penumbra of (slightly less intense) cooperation with neighbouring economies. The intensity of cooperation appears to mirror trade flows under the gravity model of trade: the closer geographically an economy is to the centre of the cluster, the more intense the cooperation between the cluster and that economy; and the greater the size of the respective economies, the greater the intensity of cooperation. This leads to a network of nodes (clusters) with links to other clusters or individual large economies.

A recent paper of mine outlines the EU cluster’s cooperation in competition matters through supra-national legislation, inter-agency cooperation agreements and comprehensive free trade agreements. The closest cooperation takes place within the EU under Regulation 1/2003, in particular within the ECN, while cooperation with the EFTA Surveillance Authority is slightly less intensive but crucially still allows for the exchange of confidential information (under Protocols 23 and 24 of the EEA Agreement), as does the cooperation agreement with Switzerland (OJ 2014 L 347/3). The next orbits around the centre are constituted by the various Stabilisation and Association Agrements (SAAs), Partnership and Cooperation Agreements (PCAs) and Euro-Mediterranean Agreements (EMAs) into which the EU has entered. From this cluster of concentric circles of cooperation there are various links to other clusters (such as Mercosur) and individual large economies (such as Singapore, South Korea, or Japan). In this way, the complexity of the interaction between 130+ competition regimes is reduced.

A development that does not fit this narrative of increasing regional cooperation is, of course, Brexit. Brexit is extricating the UK not only from the EU, but from the entire existing network that the EU cluster has developed. If the UK Government continues with its plan to leave not only the European Union, but also the Single Market and the Customs Union, then it seems practically impossible to reach an agreement by March 2019. Even with a lengthy transition period, it will be a challenge to re-invent not only the relationship with the European Union, the European Commission, and the various Member States, but also to replicate the network of meaningful cooperation agreements with the competition authorities and third countries, which the EU and the European Commission have developed.

On 21 July 2017, the EU Internal Markets Committee of the House of Lords launched an inquiry into the impact of Brexit on competition law. Written submissions are expected by 15 September 2017. ‘Do not Brexit’ would be sound advice. Failing that, negotiations about cooperation agreements (including the crucial aspect of the exchange of confidential information) at least with the EU, Member States, the EFTA Surveillance Authority and Switzerland need to be started immediately. Given that the exchange of confidential information even between closely cooperating partners is still very much the exception, this is a tall order.

Florian Wagner-von Papp is Reader in Law at the UCL Faculty of Laws.