Competition | UK Regulatory Outlook April 2024

CMA Green Agreements Guidance

The Competition and Markets Authority (CMA) recently issued informal guidance under its Green Agreements Guidance. The informal guidance relates to a proposal to extend a joint commitment between the WWF and leading supermarkets. The proposal aims to reduce greenhouse gas emissions in grocery supply chains by requiring supermarket suppliers to set science-based, net-zero targets by an agreed date. This is the second informal guidance issued by the CMA.

In assessing it, the CMA noted that while there may be some competition risks associated with the proposal, such as potential cost increases or reduced product range, it believes that the potential benefits, including significant environmental benefits and potential cost savings for consumers, could outweigh any potential harm to competition. The CMA's assessment made use of the new and substantially more permissive approach when assessing the benefits of "climate change agreements."

The guidance does mention that the proposal shares similarities with a phasing out agreement. Phasing out agreements involve the gradual elimination of non-sustainable products or processes over time. The guidance states that phasing out agreements are unlikely to raise competition concerns if they do not result in an appreciable increase in price or reduction in product quality or choice for consumers and do not have the objective of eliminating or harming competitors or market sharing.

Overall, the CMA's guidance provides businesses with an opportunity to obtain clarity and assurance for their own agreements with competitors. It is important to note that the CMA has pledged not to fine the parties to an agreement it has approved under its Green Agreements Guidance, even if it were to subsequently conclude that the arrangements infringed competition law. Please see our Insight for more in-depth discussion of this development.

AI foundation models update report

The CMA has published an update report on AI foundation models (FMs), identifying three key risks to competition. These risks relate to firms controlling critical inputs, powerful incumbents distorting choice in FM services, and partnerships reinforcing market power. The CMA expressed concerns about potential exploitation of market power and unintended consequences. It updated its AI Principles to ensure fair competition, which include access, diversity, choice, transparency and accountability.

The CMA will consider these risks when prioritising its enforcement under the Digital Markets Competition and Consumers Bill (DMCCB), currently completing the parliamentary process. It also highlighted the potential benefits and harms to consumers from the development of FMs. While higher quality products and services are possible, there is also the risk of unfair practices and flaws in the technology. The CMA will have new powers to enforce consumer protection law under the DMCCB, including imposing fines of up to 10% of worldwide turnover for non-compliance.

The CMA acknowledges the potential chilling effect of excessive regulation, which may create barriers to entry for smaller firms. It supports the policy objective of promoting market competition in AI and endorses the House of Lords Communications and Digital Committee's recommendation in this regard.

The CMA is actively participating in the Digital Regulation Cooperation Forum (DRCF), engaging in joint research on consumer understanding and use of foundation models. It is also part of the DRCF AI and Digital Hub pilot.

In addition to the update report, the CMA plans to publish further updates on FMs: a paper on AI accelerator chips and their role in the FM value chain, and a joint statement with the Information Commissioner's Office (ICO) on the interaction between competition, consumer protection and data protection. The CMA's work on AI extends beyond foundation models, and it has been asked to report its strategic approach to AI to the government by 30 April.

UK mass antitrust claim founded on sewage dumping

A number of UK water companies are facing collective action claims at the Competition Appeal Tribunal (CAT). The claims are based on the alleged underreporting of the number of pollution incidents that the companies caused, which the claimant suggests amounts to an abuse of dominance due to the consequent overcharging of customers.

This is a novel claim to bring to the CAT. While seemingly an environmental or data-related issue, the claim is premised on the alleged status of the water companies as monopolies and their ability to use their market power to mislead regulators. The CAT will have to review the evidence and assess whether the claim meets the criteria for a collective action under competition law. This will involve assessing whether there is a sufficient nexus between competition law litigation and water sector regulation. The claim is complicated by the fact that many of the companies targeted by the action are already being investigated by Ofwat and the Environment Agency/National Resources Wales for the same alleged issues.

While it is unclear what the outcome of this assessment will be, this is an interesting claim that reflects the increasingly diverse matters being brought to the CAT.

Foreign Subsidies Regulation

The European Commission has recently launched a probe into Chinese companies' involvement in public procurements across a number of EU jurisdictions using powers granted under the Foreign Subsidies Regulation (FSR). The regulator has commented that this probe and the regulation more broadly is intended to protect the economic security of the EU, particularly following the impact of Chinese imports on the European solar panel industry. As a result, it will be taking a case-by-case approach to reviewing foreign subsidies. One such investigation looked at the involvement of a Chinese company in a Bulgarian public procurement procedure relating to the supply of electric trains. Notably, the investigation was closed after the Chinese company withdrew from the procurement process.

The FSR is intended to protect the EU's internal market. It requires companies, whether established in the EU or not, to notify the Commission of EU-based public procurement tenders that (i) have an estimated contract value exceeding €250 million and (ii) include a company that was granted at least €4 million in foreign financial contributions from at least one third country in the three years before notification. The regulator will investigate the deal and, if it finds that the company has benefitted from a foreign subsidy that distorts the internal market, it may reject the tender or approve the tender subject to commitments.

The Commission can also launch investigations on its own initiative to assess whether subsidies might distort the internal market. Its investigative powers include requests for information, interviews, or on-site inspections. Redressive measures can includes structural or non-structural measures, including the repayment of subsidies, and it can issue fines for non-compliance with commitments or redressive measures. For more details on the FSR, please see our previous Insight on this regime.

While there is a particular focus on Chinese firms at the moment, the regulatory regime is intended to be territorially agnostic and therefore is relevant for all international companies whose operations may have an impact on the EU internal market. In particular, companies should be aware of the regime when undertaking M&A activity in the EU or participating in EU tender processes.