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The View from Clifford Chance - UK competition regime

23 October 2011

The View from Clifford Chance - UK competition regime

Welcome to the latest edition of Clifford Chance's media newsletter.

Written for journalists, The View highlights viewpoints from our partners on a selection of hot topics. In this edition, Antitrust partner Alastair Mordaunt, who recently joined the London office from the Office of Fair Trading (OFT), considers the issues surrounding the likely upcoming merger of the Competition Commission and the OFT.

If you'd like to hear more, please contact a member of the PR team, contact details can be found contact details can be found in the Media Centre. We'd welcome any feedback or suggestions of topics to be covered in the future.

The UK Competition Regime

The corporate world is waiting with great interest to hear the results of the UK Government's consultation process conducted earlier this year on proposals to restructure the UK's competition regime. We expect a broad outline to emerge in the coming months, although we will likely need to wait longer for a more detailed blueprint for future action.

At the heart of the proposals sit plans to merge the Office of Fair Trading, the UK's Phase One referral specialist, with the Competition Commission, its Phase Two counterpart, so creating a one-stop competition shop.

The UK's coalition Government has indicated that it is minded to favour such a merger. Assuming the merger goes ahead, an enabling bill will most likely appear on the Parliamentary timetable in 2012, with implementation in 2013 at the earliest. There thus remains more than adequate time to prepare for the new regime, but it is important to keep a close eye on this moving target.

In this brief comment, we will put to one side questions such as whether the UK should move from a voluntary regime to a mandatory regime (which is one of the options being considered as part of the consultation although not actually contingent on a merger), in order to concentrate on the possible implications for corporates of a single competition authority regime.

There is clearly upside potential. A single competition body should help in creating a more efficient, streamlined way of doing business, removing duplication of regulatory effort and process that can be costly to business in terms of management time, advisers' costs and the fulfilment of corporate strategic objectives. It should also help to deliver a greater consistency of decision-making, thereby giving corporates greater confidence in their commercial dealings.

This is however, likely to be preceded by a period in which the predictability of decision-making is less clear. Given the scale of upheaval involved in any merger, in the short-term, there will likely be a drop in productivity and output while the new organisation adjusts and finds its feet. In the longer term we should expect to see an increase in its activity.

We think there is also a real risk of a greater number of Phase 2 merger referrals as the former OFT staff settle into the revised working arrangements alongside former Competition Commission staff. Businesses which find themselves on the receiving end of a referral that might not previously have been made will likely find this an unfair burden. On the other hand, the integration of the two existing entities could deliver a faster and more efficient overall merger process. Although to achieve this goal, we think it will be important that Phase II merger reviews can be closed down much more quickly than at present, for example where the parties offer remedies that would resolve all reasonable concerns. A more efficient organisation should eventually be capable of acting more quickly, more coherently and more reliably than the existing regime.

One undoubted downside that will need to be addressed urgently will be the loss of a truly fresh pair of eyes at the Phase 2 referral stage. A single competition authority simply must find a way to replicate the robustness of the current system in which an entirely separate team takes to the field to investigate from first principles once a Phase 1 referral is made.

Creating such an environment might represent something of a challenge, and run counter to the logic deployed in advocating the creation of a single competition authority, but we think the challenge can be met through the appropriate introduction and use of internal structures and processes that support robust and independent Phase II decision making.