On 16 May 2017, the Court of Justice of the European Union (CJEU) issued the long-awaited landmark Opinion 2/15 on the EU-Singapore Free Trade Agreement (FTA). According to the CJEU, the EU-Singapore FTA falls under the EU’s exclusive competence, but not in its entirety. EU Member States’ national and regional parliaments and the European Parliament must ratify some important provisions regarding investors.
While this introduces the risk of Member States blocking future EU trade agreements, it also signals a victory for EU Institutions, particularly in the context of an EU-UK trade deal following Brexit, as the CJEU confirmed that the core of trade agreements falls under the EU’s exclusive competence.
New Generation Trade Agreements
The Lisbon Treaty enlarged the EU competences in trade by establishing the common commercial policy as an exclusive EU competence. EU institutions’ competences further strengthened as trade agreements became more comprehensive (new generation trade agreements), going beyond tariff and nontariff barriers to include regulatory trade barriers, such as intellectual property protection, investments, public procurement, competition and sustainable development.
These new generation trade agreements called for clarification on the division of competences between the EU institutions and the EU Member States. It is unclear whether such comprehensive agreements fall under the exclusive competence of the EU or the shared competence with the Member States. In addition, Member States have become increasingly concerned about their right to block trade agreements as the EU has increasingly encroached into areas of national law.
To cast away the clouds, the EU Commission requested the opinion of the CJEU “on the competence of the Union to sign and conclude a Free Trade Agreement with Singapore.”
The Opinion has a bearing on other EU trade agreements, such as the Comprehensive Economic and Trade Agreement (CETA) with Canada, where the variety of trade matters gave rise to ambiguity regarding the division of competences. Accommodating the request of various Member States, the EU Commission did not wait for the Opinion and decided to propose CETA as a mixed (shared competence) agreement. The blocking of CETA by the Walloon Parliament is generally associated with giving too much power to multinationals.
The CJEU’s Opinion
The Opinion determines that the EU-Singapore FTA falls within the exclusive competence of the EU, with the exception of provisions on non-direct investment and Investor-State Dispute Settlement (ISDS), which fall within the competence shared between the EU and its Member States.
Compared to the Advocate General’s earlier Opinion, the CJEU defines EU competences more broadly by including within the EU’s exclusive competence matters such as fundamental labour and environmental standards, which the CJEU associates with the objective of sustainable development. In this respect, the CJEU determines that the provisions on sustainable development are not intended to regulate the levels of social and environmental protection but to govern trade between the EU and Singapore and to ensure that liberalization of trade goes hand-in-hand with social and environmental protection.
With regard to foreign investment, the CJEU determined that only foreign direct investment falls within the common commercial policy and, therefore, within the EU’s exclusive competence. Non-direct foreign investment is not part of common commercial policy and does not affect primary EU law or alter its scope and, therefore, falls within a shared competence between the EU and its Member States.
With regard to ISDS, since it removes investor-State disputes from the jurisdiction of the Member States’ national courts, it has significant consequences for Member States. The CJEU ruled it cannot be established without the Member States’ consent.
Rules relating to exchange of information and to obligations governing notification, verification, cooperation, mediation, transparency and dispute settlement are of ancillary nature and follow the status of the substantive provisions that they accompany. For example, where such ancillary provisions accompany sustainable development, the EU has exclusive competence. If they relate to ISDS or non-direct foreign investment, the competence for these institutional provisions are shared.
Impact on Future Trade Agreements, Including Brexit
The Opinion sets a precedent for other trade agreements, including the upcoming EU-UK trade negotiations in the context of Brexit.
The Opinion may give rise to an increased risk of blockage of future trade agreements by national parliaments, as the Wallonia parliament did during the ratification of CETA.
However, the Opinion signifies in part a victory for EU institutions as the CJEU accepted the EU’s exclusive competences for the core of trade agreements. Such division of powers, may incentivize EU institutions to change their approach to future trade agreements. This could result in negotiating and concluding separate agreements, where traditional trade matters such as goods, services and public procurement can be agreed upon without the intervention of national parliaments.
There is now clarity on the position of national and regional parliaments. The Opinion confirmed their institutional involvement in the ratification procedure at least regarding ISDS and non-direct foreign investment provisions. These provisions were at the core of the Walloon Parliament’s concerns in CETA.
It will be interesting to see how the EU will respond to the Court’s opinion in structuring future trade deals, including Brexit.
We will keep you updated on further developments but if you have any questions please contact one of the below.
Vassilis Akritidis, Partner, Brussels
+32 2 629 42 53 | [email protected]
Florentine Sneij, Associate, Brussels
+32 2 629 42 48 | [email protected]