Some differences identified in draft EU and UK vertical agreement rules

The regulations are both designed to oversee arrangements between firms at different levels of a supply chain - such as a manufacturer and a retailer – that are known as vertical agreements. While they often reduce transaction costs and promote beneficial investment, vertical agreements can contravene competition law if they increase barriers to entry or otherwise reduce the potential for competition.

VABEO is intended to replace the EU’s existing Vertical Block Exemption Regulation (VBER), which the UK retained in law after Brexit and which will expire on 31 May 2022. Both regimes would exempt uncompetitive vertical agreements from competition law when they are between parties with shares of 30% or less in their relevant markets.

Richard Snape, competition law expert at Pinsent Masons, said that while the UK’s draft regulation “closely mirrored” an updated draft of VBER published by the European Commission in July, it contained several “limited but notable differences.”

Unlike VBER, for example, VABEO would consider wide ‘most-favoured nation’ (MFN) clauses in retail markets - a status that guarantees a state will receive certain trade advantages from another – to be “hardcore restrictions”, which vertical agreements are not allowed to contain. Wide MFNs in business-to-business markets will not be considered hardcore restrictions. Conversely, the proposed updates to VBER outline different market share threshold requirements for brands that sell directly to customers as well as through retailers – a practice known as dual distribution – while VABEO does not.

Snape said: “The UK and EU remain aligned in most material respects, however these differences should be noted as they have the potential to pose some difficulties for suppliers who want to operate a consistent cross-border distribution policy. Notably, the UK Competition and Markets Authority (CMA) has yet to publish its accompanying guidelines, which will set out its current thinking in relation to some of these more contentious areas.”

“Given that the VBER will expire on 31 May 2022, the CMA’s guidelines are expected with interest,” he added.

Last month, the CMA launched a consultation on the proposed text of VABEO. If implemented, the regulation will remain in place for six years. Meanwhile, the Commission concluded an additional public consultation on proposed guidance relating to dual distribution in February.