Suspending Competition Law – what’s it oil about?
Updated: Nov 12, 2021
On 26 September 2021, in the midst of panic buying at fuel pumps, the UK government enacted the Downstream Oil Protocol. This consisted of a temporary suspension of certain competition laws applicable to the fuel industry under the Competition Act 1998.
This blog post will explore what the temporary suspension means, why it was enacted, and whether it represents an increasing use of competition law suspension worldwide.
Competition Law: the basics
Competition law (or antitrust law) aims to maintain market competition, ensuring that a fair marketplace exists for both consumers and producers. Anti-competitive behaviour can hurt consumers through higher prices and reduced quality of goods and services. Moreover, it can adversely affect smaller companies aiming to penetrate the market.
There are three main elements to competition law. Firstly, it supervises the mergers and acquisitions of large corporations. Secondly, it bans abusive behaviour by a monopolistic firm (or anti-competitive practices that tend to lead to a firm occupying a monopolistic position), such as predatory pricing and refusal to deal. Thirdly, and most relevant for the Downstream Oil Protocol, it disallows agreements and practices that restrict free trading and competition between businesses, such as the repression of free trade caused by cartels.
The Competition Act 1998 prohibits any agreement, practice or conduct which has, or could have, a damaging effect on competition between UK companies. This includes the exchange of competitively sensitive information, such as information regarding future prices, quantities, production or customers.
The Downstream Oil Protocol
So, if competition law is generally beneficial for both consumers and producers, why was it suspended in September? Schedule 3 paragraph 7(1) of the Competition Act 1998 provides that certain arrangements can be exempted from Chapter I prohibition of the Competition Act 1998 on exceptional public grounds. Specifically, in relation to fuel, an Order was issued in 2012 which provided that the Chapter I prohibition would not apply to protocols agreed between the Secretary of State and designated persons concerning the distribution of fuel in the event of a disruption to supply.
According to Business Secretary Kwasi Kwarteng, the Downstream Oil Protocol was enacted ‘to ensure industry [could] share vital information and work together more effectively to ensure disruption [was] minimised’. The shortage of HGV drivers, creating supply chain pressures, fundamentally resulted in the fuel shortages. Peaks of local demand further exacerbated the issue. By sharing information, the Protocol allowed industry participants to prioritise fuel delivery in parts of the country that needed it the most.
What’s the bigger picture?
Schedule 3 exclusion orders are rarely used; indeed, only a ‘handful’ have been enacted since the Competition Act 1998 came into force. They are viewed as an exceptional measure and their implementation is not done lightly. Interestingly, five exclusion orders were implemented in 2020 in response to Covid-19 (in the grocery sector, the Isle of Wight ferry service, health services and dairy sector). For example, in March 2020, supermarkets were permitted to share information and cooperate on stock levels, delivery time slots, distribution depots and delivery vans. The Order was subsequently revoked in October 2020 as the Secretary of State deemed that the exceptional reasons for which it was required had abated.
The tendency to suspend competition law in light of Covid-19 has been observed outside of the UK as well. In March 2020, Norway suspended competition rules between airlines, intending to encourage coordination to ensure critical services continued. Two months later, the EU relaxed antitrust restrictions to support the food and agriculture sector.
With ‘exceptional’ circumstances seemingly becoming the norm, perhaps suspending competition law will become a more common practice. For example, rises in wholesale gas prices resulted in the government temporarily exempting certain forms of collaboration between parts of the CO2 industry to ensure country-wide supply in September 2021. Furthermore, post-Brexit Britain is experiencing labour shortages in various industries; indeed, there have already been warnings about shortages of poultry at Christmas. We may expect competition law suspensions to be enacted as part of a package of measures to mitigate against the effects of labour shortages.
Looking forward, given the underlying assumption that collaboration between corporations can solve widespread public interest issues, Schedule 3 could perhaps be used to tackle climate issues. However, as highlighted by Simmons & Simmons, climate change is a long-term issue, whereas Schedule 3 is generally only appropriate in the short term. Moreover, given that a lack of competition generally hurts consumers, policymakers should not rely on this tool. Finally, as discussed by K&L Gates LLP, consistent exceptions to competition law ‘would provide considerable uncertainty to businesses and potentially dilute the importance of the competition regime’. Therefore, although competition law suspensions may become more common in the future, they should not be relied upon to tackle more general, long-term market-based issues.
Allen & Overy
Allen & Overy is a leading law firm in antitrust & competition. For example, Legal 500 UK currently ranks it in band 2 for EU and Competition Law. Allen & Overy’s monthly Antitrust in focus publication is useful for keeping up to date with the latest global antitrust news. The firm’s antitrust & competition team often advises clients in conjunction with other divisions in a cross-jurisdiction manner. For example, Allen & Overy recently advised RAJA Group (Europe’s leading multichannel distributor of supplies and equipment for business) on the acquisition of Viking and its Office Depot Europe operating business. This involved work by both the Paris and Netherlands office, incorporating competition, IT/data protection and intellectual property aspects.