COVID-19: The UK Government’s temporary relaxation of competition law for grocers*
On 19 March 2020, the UK Government announced that it would be temporarily waiving certain competition laws in order to allow grocers to coordinate their responses to supply issues during the COVID-19 pandemic. The relaxation was announced after a number of UK supermarkets called for clarity on whether they would be able to cooperate with competitors in order to ensure security of supply during the crisis. On 28 March 2020, the Competition Act 1998 (Groceries) (Coronavirus) (Public Policy Exclusion) Order 2020 (“the Order”) came into force.
George Eustice, Secretary of State for the Environment, Food and Rural Affairs, made the following statement: “By relaxing elements of competition laws temporarily, our retailers can work together on their contingency plans and share the resources they need with each other during these unprecedented circumstances.” This article focusses on the competition law waivers now in force for grocers in the UK, and comments briefly on equivalent steps being taken elsewhere in the EEA.
Which elements of competition law are being relaxed?
The UK Government will now allow exchanges of certain types of commercial information between supermarkets, such as data on stock levels. Other forms of cooperation that are temporarily excluded from the Competition Act prohibition include:
- coordination to limit purchases by consumers of particular groceries;
- coordination to enable shops to stay open or on the temporary closure of stores;
- coordination to assist particular groups of consumers (e.g. critical workers, clinically vulnerable and socially isolated groups), such as prioritising deliveries or opening stores at specific times to these groups or otherwise providing assistance to them;
- sharing labour, distribution and delivery systems and facilities;
- sharing information on services provided by logistics service providers.
The Order also contains a list of activities of logistics services providers that are excluded from the prohibition on anti-competitive agreements during the period of disruption, including the exchange of information, labour or facilities in relation to the delivery of groceries. All agreements that fall within the scope of the Order must be notified to the Department for Business, Energy and Industry Strategy, which will compile, maintain and publish a register of agreements.
In addition, the Competition and Markets Authority (CMA) has acknowledged that coordination may be necessary to ensure security of supplies, and hasprovided further reassurance that, even if businesses cooperate in a way that is not specifically covered by the Order, they will not be subject to enforcement action provided they are doing so in order to protect consumers during the current crisis.
On 25 March 2020, the CMA published further guidance on cooperation between businesses during the COVID-19 pandemic, and its enforcement priorities in light of the current crisis. In summary, the CMA will not take enforcement action where businesses take temporary measures to coordinate action to ensure the supply of important goods and services, provided that such measures:
a) are appropriate and necessary to avoid a shortage or to ensure security of supply; b) are in the public interest; c) contribute to the benefit or wellbeing of consumers; d) deal with critical issues that arise as a result of the pandemic; and e) last no longer than necessary to deal with these issues.
This guidance also gives additional clarity on how criteria for exemption from the prohibition of anti-competitive agreements, as set out in section 9 Competition Act 1998, should be applied in individual cases during the pandemic, “to assist businesses in more confidently making their own assessment in the specific circumstances of the COVID-19 pandemic”.
What is not covered by the legal relaxation?
The Order does not cover any coordination by retailers that is not specifically designed to protect consumers. The Explanatory Memorandum to the Order expressly states that the direct sharing of information relating to costs or prices are not included in the scope of these exclusions, nor is the sharing of any information or collusion on future business strategy.
The CMA has stated that the relaxation will not prevent it from taking action against businesses exchanging information “where this is not necessary to meet the needs of the current situation”, in particular information on long-term pricing or business strategy. Businesses attempting to exploit the current situation in order to engage in “non-essential collusion” will not be shielded from competition law enforcement by the relaxation. The CMA also notes that supermarkets will not be immune from private damages actions by consumers or businesses claiming that they have suffered harm due to cooperation between supermarkets.
In the CMA’s most recent guidance, it gives further examples of the types of activities that will not be tolerated, including:
- retailers excluding smaller rivals from any efforts to cooperate or collaborate in order to achieve security of supply;
- “price gouging”; and
- coordination that extends to the distribution or provision of goods or services not affects by the COVID-19 pandemic.
The wider context
This is not the first time that the Government and CMA have sought to reassure businesses that enforcement action will not be taken against them where they are taking necessary steps in order to react to a challenging circumstances. In its Annual Plan for 2020 to 2021, one of the CMA’s six key priorities is to support the transition to a low carbon economy in face of the climate crisis. It states that it will communicate with businesses to ensure that they do not “unnecessarily shy away from those initiatives on the basis of unfounded fears of being in breach of competition law.” Whilst not providing an explicit relaxation of competition law, this suggests that the CMA will look favourably on businesses that are working towards sustainability.
Nor is the UK the only country that has taken such temporary measures in the last few weeks. Last week, the Norwegian government announced a temporary waiver of competition law for the transportation sector. On 13 March 2020, Ursula von der Leyen (President of the European Commission) stated that the EU will provide Member States “maximum flexibility” on state aid in order to support industries that are under threat, such as tourism and retail.
It is critical that, regardless of this temporary waiver, grocers continue to comply with the spirit of competition law and are careful not to coordinate in a way that takes advantage of the crisis for their own benefit, to the detriment of consumers. Businesses must also ensure that they do not coordinate their activities to the extent that it is difficult to unravel after the waiver is lifted.
It will be interesting to see whether specific waivers of national competition law will become more commonplace after the end of the pandemic, for example for businesses that are cooperating with the aim of becoming carbon-neutral. Under EU competition law, only the Commission has the power to adopt exemption regulations providing a “safe harbour” for certain types of agreement that are generally seen as beneficial. However, in a post-Brexit UK, it is possible that national block exemption regulations may be adopted. Alternatively, using the COVID-19 response as a precedent, may choose to take a more flexible approach by relaxing competition laws for limited time periods where a specific goal is to be achieved.