On 23 June, the Government will ask the British public whether we wish to stay in the European Union or leave it and go our own way for the first time since joining in 1973.
‘Brexit’, if it happens, will have various consequences, some easier to predict than others. One area of impact will be on our laws, and since much of our recent legislation is either taken from, or based on, European Union Law, there is a question as to what happens to those laws after June 23rd.
UK Competition Law is one example of a law based closely on the EU’s model and which has a significant influence on goods and passenger operators.
What is Competition Law?
Competition Law regulates economic activity by ensuring that businesses operate on a level playing field. It applies to every business in a given market so that consumers there enjoy a greater choice of goods and services at the most competitive price.
In the UK it takes the form of the Competition Act 1998, modelled on the EU’s Treaty on the Functioning of the European Union, and the Enterprise Act 2002. Anti-competitive behaviour affecting trade inside the UK is prohibited by these Acts, and where the effect of anti-competitive behaviour extends beyond the UK to other EU Member States, it is prohibited by TFEU.
From your business’s perspective, Competition Law is primarily concerned with the four following situations:
- Abuse of dominant position – where a business dominates a substantial part of a market, it could abuse that position by, for example, charging consumers or distributors unfair prices, discriminating between distributors or limiting production. All of these practices can distort competition in that market.
- Cartels – a cartel is any agreement or concerted practice with the object or effect of preventing, restricting or distorting competition. It includes bid rigging, price-fixing, market-sharing and exchange of price-sensitive information between competitors. Currently, an individual is guilty of a criminal offence if he “agrees with one or more other persons to make or implement, or to cause to be made or implemented, arrangements which amount to cartel activity”, regardless of whether there is any dishonest intention on his part.
- Mergers and acquisitions – merger regulation concerns the control of concentrations between two or more businesses in a given market. National Competition Authorities review, intervene in and, in some cases, block mergers and joint ventures between businesses if they are over a certain size in that market.
- State aid – this concerns the control of direct and indirect aid given by EU Member States to companies in those States.
Non-compliance with Competition Law risks large fines by National Competition Authorities (up to 10% group global turnover in the case of cartel activity at EU level) and other penalties, as well as individual criminal prosecution and private claims against businesses.
I own a goods or passenger business. How does Competition Law affect me?
Simply, any activity by your business which could affect competition in a market can give rise to Competition Law implications there.
Since hauliers are often involved in cross-border import / export business with the EU, they are particularly at risk of falling foul of the EU’s Competition Law regime through any conduct which could have an anti-competitive effect in the EU.
Following the four limbs above, examples of UK Competition Law affecting UK road transport businesses in the past include:
- Abuse of dominant position
In 2011, the UK Office of Fair Trading (“OFT”) investigated a leading UK provider of fuel cards and fuel management solutions to commercial vehicle operators under the Competition Act.
It alleged that the provider had abused its dominant position in the UK market for the provision of bunker fuel card services to direct bunkering customers, typically HGV fleet operators, and was using its dominant position to anti-competitive effect.
In 2013, after a lengthy investigation, OFT decided that it had no grounds to take action against the company and closed the investigation.
In 2010, the OFT investigated suspected breaches of the cartel prohibition under the Competition Act in relation to the distribution of commercial vehicles by a manufacturer to five dealers of commercial vehicles in England, Wales and Scotland.
In February 2013, it announced that the manufacturer and three of the dealers had admitted breaching Competition Law and had agreed to pay fines totalling £2.6million. Then, in March 2013, OFT found that in fact the manufacturer and five of its commercial vehicles’ dealers had infringed Competition Law and imposed fines over £2.8million.
While not relating to a goods or passenger business, this is an example of sanctions handed down by the UK regulator for collusive activity between UK-based competitors.
- Mergers and acquisitions
In 2012 the OFT approved the acquisition by FleetCor UK Acquisitions Limited of the fuel card business of Arval UK Group Limited. Before this, however, it conducted a thorough investigation of the merger on the basis of the following markets:
- the supply of direct bunkering cards to UK commercial fleet customers;
- the supply of Pay-As-You-Go commercial fuel cards to UK HGV commercial fleet customers; and
- the supply of retail fuel cards to UK non-HGV commercial fleet customers.
In addition to these three business-specific examples, Competition Law can also have industry-wide implications, both in the UK and in the EU.
- State aid – HGV Road User Levy
The European Commission recently wrote to the UK Government with regards to a time-based road charge for HGVs operating in the UK, introduced in 2014. It is concerned that the levy discriminates against non-UK hauliers entering the UK, and has requested a full response from the UK Government, which has two months in which to provide this response.
If the UK’s response is unsatisfactory in addressing its concerns, the Commission may at that point send a Reasoned Opinion to the UK, which would be the next stage in any infringement procedure against the UK.
While the levy was originally intended to apply equally to UK-registered vehicles, the impact on them has been limited by corresponding reductions in domestic vehicle excise duty. In the Commission’s view, this “means that national users are de facto not paying the road charge”.
The Commission’s decision has been criticised by the Road Haulage Association, which pointed out that non-UK operators previously did not have to pay for use of UK roads, with the burden of road maintenance falling on UK-based operators.
What will Brexit change?
On first impressions, not much; but there is no way of knowing for certain, since any developments in legislation after a “Yes” or “No” vote will depend on how the UK Government negotiates with Europe at that point.
With regards to existing transport legislation, this is currently an area over which the EU and the UK “share competence”. What this means is that our legislation is designed to be in line with that of the EU. This is done through Regulations, which have direct effect in Members States including the UK, and Directives, which give direction to Member States in the formulation of their own domestic laws.
Technically, since they affect the UK directly as regulations, EU rules on drivers’ hours and operator licensing would no longer apply after Brexit; whether this would actually happen in practice, however, would remain to be seen. On the other hand, driver CPC requirements were implemented in the UK through the Vehicle Drivers (Certificate of Professional Competence) Regulations 2007, which are UK regulations implemented by the Secretary of State for Transport. Following Brexit, therefore, the 2007 Regulations would continue to apply in the UK. In theory, however, there could be scope then for Parliament to repeal the Regulations altogether.
As for Competition Law, as it stands our framework is largely based on the EU’s, so a vote to leave the Union would be unlikely to result in a raft of new Competition legislation. It is possible, however, that our two regimes begin to diverge from one another and to follow different courses afterwards.
One thing is more certain. Whatever happens to our own laws, EU Competition Law applies not just to EU Member States but also to any businesses whose activities have an effect on trade in or between EU Member States. This will continue to be the case for UK businesses which have operations in the EU where those operations can affect trade and competition there, whether or not we vote to leave or remain. The big difference is that with the UK out of the Union, those same UK-based businesses would find themselves dealing with two Competition Law regimes and two separate National Competition Authorities at the same time, one in the UK and one in the EU, whenever the effect of that business’s operations overlaps both markets.
While the Referendum is now less than three weeks away, Competition Law is here to stay and it will continue to affect all businesses in the UK, big and small, particularly when those businesses operate in both the UK and on the continent.
In the meantime, you should always consider taking legal advice before starting any operation by your business or co-operation with competitors that could reduce competition and breach Competition Law.