Competition | UK Regulatory Outlook October 2023
Published on 31st Oct 2023
Foreign Subsidies notification regime now in force | CMA publishes new Green Agreements Guidance on sustainability collaborations | CMA publishes Cloud Market Investigation
Foreign Subsidies notification regime now in force
The Foreign Subsidies Regulation (FSR), which came into force on 12 January 2023, aims to redress the distortive effect on competition in the EU caused by companies in receipt of substantial foreign subsidies within the EU internal market. The new mandatory notification regime, which will apply to companies who benefit from material state subsidies, came into effect on 12 October 2023.
The changes introduced by the FSR have been implemented in two stages:
- New powers of investigation: As we reported in an earlier Insight, on 12 July 2023, the European Commission gained extensive new powers to investigate suspected instances of companies benefiting from foreign subsidies.
- New mandatory notification regime: With effect from 12 October 2023, a new mandatory notification regime will require qualifying transactions or public tenders in the EU that are entered into by companies in receipt of substantial non-EU government subsidies or state support to be notified to and cleared by the European Commission.
Qualifying M&A transactions (concentrations) that are signed on or after 12 October 2023 must be notified to and cleared by the European Commission prior to completion where:
- At least one of the merging parties, the target or the joint venture must have group-wide turnover of at least €500 million in the European Union; and
- The total combined value of all foreign financial contributions received by the parties exceeds €50 million in the previous three years.
For companies intending to participate in public tender processes within the EU, there is a requirement to notify the European Commission prior to concluding a contract under a public tender where:
- The estimated overall contract value is at least €250 million (or, if the contract is divided into lots, the value of the lot(s) that the tenderer competes for exceeds €125 million); and
- The tenderer received foreign financial contributions of at least €4 million per third country over the previous three years.
Companies in receipt of foreign subsidies that are already active in the EU or are intending to enter the EU market through acquisition or tender need to determine if they may fall within the ambit of the FSR mandatory notification regime.
If not already done, a careful assessment and evaluation is needed to determine the value of any non-EU subsidies received in the last three years. For more, read our Insight.
CMA publishes new Green Agreements Guidance on sustainability collaborations
On 12 October 2023, the Competition and Markets Authority (CMA) published its final version of the long-awaited Green Agreements Guidance, providing guidance to businesses on how to comply with competition law when engaging in collaborations with competitors on environmental topics.
We have been following this developing area closely and have previously provided insight into the CMA's consultation and on the approach taken by the European Commission and the Netherlands' Authority for Consumers and Markets.
The guidance follows essentially the same structure as the draft guidance, although it has been extended to provide further guidance, clarifications and examples in certain areas. It covers four broad themes. These are:
- environmental collaborations unlikely to raise competition concerns;
- environmental collaborations likely to be caught under competition law;
- a general exemption for environmental sustainability agreements; and
- a more permissive approach for "climate change agreements".
The guidance also covers the CMA's "open door policy" in relation to environmental sustainability agreements where it is open to providing informal guidance to companies ahead of the implementation of agreements and has indicated that it will not undertake enforcement action against agreements which it has given the greenlight to under this policy.
The publication of this guidance represents an important step for companies wishing to collaborate with competitors on achieving environmental sustainability objectives. The imperative for companies to set and achieve sustainability objectives is only going to grow in the coming years and, as such, this is an important topic that all businesses need to be familiar with. For more, see our Insight.
CMA publishes Cloud Market Investigation
On 17 October 2023, the CMA published its issues statement in its market investigation into the supply of public cloud infrastructure services in the UK. This follows on from Ofcom's market study into this sector, which concluded with a market investigation reference to the CMA. The CMA also notes that its recent report into AI foundation models identified cloud services as a cornerstone of recent technological innovations. As a result, it will also consider the impact of AI in this market.
Having reviewed Ofcom's findings, the CMA is proposing to focus the investigation on four groups of high-level hypotheses (theories of harm) based on both the structure of the market(s) that it will investigate and the conduct of relevant firms within these or other related markets. These are:
- Theory of harm 1: Technical barriers make switching and multi-cloud harder and limit competition between cloud service providers.
- Theory of harm 2: Egress fees harm competition by creating barriers to switching and multi-cloud leading to cloud service providers entrenching their position.
- Theory of harm 3: Committed spend discounts raise barriers to entry and expansion for smaller cloud service providers by incentivising customers to concentrate their business with one provider.
- Theory of harm 4: Software licensing practices by cloud service providers restrict customer choice and prevent effective competitors.
Given the increasingly widespread use of cloud computing across almost all business sectors, this market investigation is likely to be relevant to and have consequences for a significant range of businesses. It will be important for the majority of companies to remain aware of this market investigation and keep on top of developments in this space. See the press release.