What is the current legal framework?
Broadly, anti-competitive agreements or concerted practices are prohibited by EU competition law (in particular, Article 101 of the Treaty on the Functioning of the EU (TFEU)) and its UK equivalent, Chapter 1 of the Competition Act 1998.
Article 101(3) of TFEU (and the equivalent provision in Section 9 of the Competition Act) exempts arrangements from the application of competition law where benefits arise. In order to simplify what would otherwise be a complicated analysis, the European Commission has put in place so-called block exemptions which allow various categories of agreements to be exempted provided that they fulfil certain conditions.
One such regulation covers the motor vehicle sector: Regulation (EU) No 461/2010 on the application of Article 101(3) of the TFEU to categories of vertical agreements and concerted practices in the motor vehicle sector (MVBER).
How does the MOTOR VEHICLE BLOCK EXEMPTION REGULATION operate?
The current version of the MVBER, the 2010 MVBER, operates as follows:
In relation to the market for the purchase, sale and resale of new motor vehicles (primary market), the MVBER makes it clear that the primary market will be dealt with under the general vertical agreement block exemption regulation (VABER).
In general terms, this presumes that vertical agreements in the primary market are legal if:
- They are concluded between companies with relevant market shares of less than 30%
- The agreement contains no hardcore restrictions, for example:
- Fixing or restricting prices
- Restricting sales in certain territories or to certain customers
- Restricting members of a selective distribution system from making active or passive sale to end users
In relation to the market for the provision of repair and maintenance services for motor vehicles and the distribution of spare parts (aftermarket), the MVBER provides a specific block exemption.
For vertical agreements relating to the aftermarket to benefit from the safe harbour of the MVBER’s block exemption, two criteria need to be satisfied:
- The vertical agreement would need to fulfil the requirements of the VABER (i.e. the companies must have relevant market shares of less than 30% and the agreement must contain no hardcore restrictions)
- The vertical agreement must not contain any of the motor vehicle specific hardcore restrictions listed in Article 5 of the MVBER
The MVBER does not apply to vertical agreements which, directly or indirectly, in isolation or in combination with other factors under the control of their parties, restrict:
- The sale of spare parts by distributors to independent repairers
- The sale by a supplier of spare parts, repair tools or diagnostic equipment to independent distributors or repairers
- A supplier’s ability to place its logo on components or spare parts
When does the MVBER expire?
The MVBER is due to expire on 31 May 2023 and, at this stage, it is not clear whether the EU will retain the MVBER. The position is currently under review with public consultations due to commence in the fourth quarter of 2020.
What will happen once the UK-EU transition period ends?
It is becoming increasingly uncertain whether the UK and the EU will enter into a free trade agreement and, if so, whether any such trade agreement will be entered into on the basis of regulatory equivalency.
Currently, under the European Union (Withdrawal) Act 2018, EU law, as it has effect in domestic law immediately before exit day (31 December 2020), will continue to have effect in UK law after the end of the transition period as retained EU law.
Draft competition law to come into force on the end of the transition period amends the retained MVBER to ensure that it works in the UK competition law framework. The draft legislation includes a power for the Secretary of State to vary or revoke the retained MVBER and, interestingly, removes the relevant provision for the automatic expiry of the MVBER. It is unclear whether it is the government’s intention to remove or amend the MVBER sooner than its expiry under EU competition law, or whether it will be left to continue past the expiry date.
The likelihood of future regulatory divergence will depend on a number of factors including the nature of any future relationship between the UK and the EU, and the UK government’s public policy objectives.