When British supporters of Brexit talked of “global Britain,” they probably didn’t have in mind British bureaucrats dictating to the world how businesses should be run. Yet that is what has happened through the emergence of the Competition and Markets Authority (CMA) as a regulator with global reach. The CMA’s enthusiasm for projecting its unaccountable power could become an international issue, and a stumbling block in trade negotiations with the United States. It needs reform.
The CMA’s Increasingly Interventionist Stance
The CMA first came to many American attention in May 2020 when it blocked the merger of two U.S. air transportation technology firms, Sabre and Farelogix. It found that:
[The merger] may be expected to result in a substantial lessening of competition (SLC) within the following markets:
(i) in the supply of merchandising solutions to airlines on a worldwide basis including in the UK.
(ii) in the supply of distribution solutions to airlines on a worldwide basis including in the UK.
This finding came after a U.S. federal court had rejected a similar claim by the U.S. Department of Justice (DOJ), finding that DOJ had failed to prove its case. Sabre President Sean Menke said:
Unfortunately, the United Kingdom’s Competition and Markets Authority (CMA)—acting outside the bounds of its jurisdictional authority—has prohibited the transaction. We strongly disagree with the CMA’s decision.
However, Sabre abandoned the merger.
The CMA has since turned its attention to American “GAFA” firms—Google, Amazon, Facebook, Apple. Recently, it blocked Facebook’s acquisition of the small GIF library GIPHY, on the basis that GIPHY was considering a move into advertising (despite never doing so) and that the market for GIF libraries would be reduced. CEI, jointly with the London-based Adam Smith Institute, raised objections to the preliminary findings, and the CMA even agreed with us that “acquisition by a larger firm may be an exit strategy for a start-up, and that the availability of this option may reduce the risk to investors of providing funding for innovative firms,” but claimed that its finding of an SLC meant that it had a statutory duty to block the merger.
Even more recently, the Authority published preliminary findings that Apple and Google have established a “vise-like grip” over the mobile phone market that could lead to higher prices and to consumers missing out on technological alternatives. All of its proposed remedies would substantially weaken Apple’s and Google’s control over their proprietary systems and likely lead to a reduction in consumer welfare, despite the CMA’s findings.
Is the CMA Trying to Become the World’s Competition Policeman?
Given these actions, there is some concern that the CMA is intentionally attempting to become a “world leader” among competition authorities by policing the actions of large American firms. The suggestion is that the CMA needs to do this because the two biggest markets for these firms—the United States and the European Union—are unlikely to change course any time soon, because of the need for a change in legal doctrine in the U.S. and the need for unanimity in the EU. By contrast, because of its unique structure and powers, the CMA is able to respond to a change in philosophy around antitrust more freely than those jurisdictions’ competition authorities.
The CMA is able to position itself this way because of the lack of a global agreement on competition policy. Attempts to reach agreement on the issue at the World Trade Organization (WTO) were abandoned even before the Doha round collapsed. The Global Trade and Innovation Policy Alliance has proposed a new WTO framework, but official enthusiasm for such an agreement appears limited. In its absence, it appears we may be caught in a “race to the bottom” where competition authorities compete to be the most restrictionist. The Federal Trade Commission FTC and the European Commission’s Directorate General for Competition are no slouches on this front, but the CMA is clearly in the lead.
The CMA’s Unaccountable Structure
What makes the CMA so powerful is its unaccountable structure. In the U.S., there is political oversight of the Department of Justice antitrust division and of the FTC through its commission structure (despite current leadership’s contempt for that structure). However, the CMA is a “non-ministerial government department” staffed by bureaucrats with no real political oversight. Moreover, both the DOJ and FTC have to win court cases to substantiate their findings. The CMA, on the other hand, simply issues an order after a round of public consultation.
The appeals process against a CMA order is extremely limited. The appeal goes to the Competition Appeals Tribunal, (CAT), which can only overrule the CMA when it finds that “the CMA acted irrationally, illegally or with procedural impropriety.” Appeals from the CAT to the U.K. courts can only center around a dispute on a point of law. Unsurprisingly, this means that the CMA wins most cases on appeal.
The combination of powers involved here should outrage any American. The CMA claims to have the ability to stop any merger, anywhere in the world, if there is any British nexus to the case. Its decisions are made by bureaucrats, without any political oversight, and without regard to any unacceptable tradeoffs. There is little to no chance of successful appeal. The lack of due process is immediately apparent.
The one possible light in this dark tunnel is that the CMA’s ability to enforce its orders on U.S. firms is so far untested in the U.S. court system.
Solutions: U.K. Reform or U.S. Hardball
Absent a definitive answer from American US courts, there are two possible solutions to the problem of an unaccountable CMA determined to throw its weight around. The first is reform in the U.K. itself. This could center around the CMA having to prove its cases in court. However, thanks to agreement among all parties that competition enforcement should be free from politics, the imposition of political oversight is highly unlikely.
However, a consultation on competition law reform is currently underway and it is unlikely that the introduction of a new judicial step would be seen as beneficial. As the British law firm Linklaters noted in a 2021 analysis:
These reforms would enable the CMA to block a US/US or US/European deal that is capable of review by the US and EC agencies, whose regimes have much greater nexus, and for whom the aggregate expose for consumers in their jurisdiction probably dwarfs that of the UK in the paradigm case.
Therefore, it seems the only way for the U.S. to protect its interests and to restrain the CMA’s overenthusiasm for flexing its enforcement muscles is to play hardball diplomatically. The CMA should be a factor in developing the U.K.-U.S. free trade agreement the U.K. so desperately wants. At the very least, American negotiators should demand a binational tribunal to decide on competition issues when either party’s national competition authority finds against a merger or business practice of a company headquartered in the other party’s territory. This should restore a measure of due process to the CMA’s activities.
If he didn’t have enough headaches already, the CMA could soon become a big one for British Prime Minister Boris Johnson.