The European Union will have to secure approval from national parliaments in order to finalise a free trade deal with Singapore. The bloc’s top court ruled that the agreement in “its current form” cannot be handled by the Commission acting alone.
The European Court of Justice (ECJ) today (16 May) said that the European Commission cannot finalise a free trade agreement (FTA) with Singapore, after the EU executive had asked for clarity on whether it has exclusive competence to handle the talks.
Today’s decision follows a December opinion issued by the Court’s Advocate-General, Eleanor Sharpston, who also decided that the agreement covered a number of issues that are shared competence between the member states and the EU.
It was the Commission itself that asked the ECJ to clarify if it alone can conclude the agreement. The executive chose the Singapore deal because of how similar it is in structure to a whole host of other agreements the EU has in the pipeline.
The Luxembourg court did acknowledge that a large part of the agreement does fall under exclusive EU competence, as provided by the Common Commercial Policy (CCP). But it highlighted that portfolio investment and dispute settlement between investors and the state cannot be established without member state consent.
While the Court’s final decision did not differ from the Advocate-General’s in its conclusions, it did disagree on a few issues. The AG’s opinion said that sustainable development and transport services, particularly maritime, were a shared competence while the Court ruled they are EU exclusive.
About the ECJ opinion on the Singapore trade agreement: This gives us very welcome & much-needed clarity about how to interpret EU Treaties.
— Cecilia Malmström (@MalmstromEU) May 16, 2017
The Commission will now need time to process the decision, as it has significant implications on its trade policy as a whole.
Now that the ECJ has ruled that the agreement is a shared or mixed deal, it opens the door to a repeat of the delay encountered when the EU needed 38 national and regional parliaments to ratify its Canada FTA (CETA).
The deal was only salvaged when Wallonia withdrew its opposition but the EU still suffered a major embarrassment.
Brussels previously risked a similar setback during the final stages of its Korea FTA, when the Italian parliament considered blocking the deal due to concerns about its car industry.
The executive will now have to decide whether to run the same gauntlet again and hope that the lower profile Singapore agreement can pass through unscathed.
Another option could be splitting the agreement into two halves, one of which would contain all the aspects over which Brussels has exclusive competence, while the other would need to be approved at national and regional level.
This decision by no means jeopardises the EU’s trade policy; it clarifies the increased powers granted to the Commission by the Lisbon Treaty.
The EU executive would no doubt have preferred the court to have ruled in favour of totally exclusive competence but it at least now has a blueprint as it moves forward with other FTAs like Mexico, Mercosur and, perhaps, TTIP.
In terms of its effect on the Brexit negotiations, the ECJ opinion has not worsened the UK’s chances of securing a trade deal once it has left the bloc.
The European Council can provisionally apply FTAs with shared competences, which it has done with CETA, and there is, theoretically, no legal limit on how long this interim period can go on for. The WTO’s predecessor, the GATT, was applied this way for decades.
Depending on what the Commission does next, any eventual EU-UK deal could also be split into exclusive and shared competences in order to speed up the ratification process. The two parties could even negotiate an FTA that only deals in exclusive competences.
The ECJ today ruled that only two aspects of the Singapore FTA are of shared competence. The EU and UK could therefore decide to omit portfolio investment and dispute settlement altogether, if the Brexit negotiations get that far, of course.
This ECJ’s full ruling is available here.
ClientEarth trade lawyer Laurens Ankersmit said: “The Court’s Opinion reaffirms the critical role of member states in the ratification process of vast trade agreements such as CETA.
“The Opinion clears the path for Slovenia and Belgium to get the EU-Canada trade deal, CETA, legally checked by the ECJ. This is not just important for the rule of law in Europe, but might also put ratification of CETA in peril.”
On Brexit, Laurens said: “The new generation of EU trade agreements are extensive and more complex than ever before, going way beyond just lowering tariffs. If the UK wants to sign a swift trade deal with the EU, it may have to get every one of the EU’s national governments to agree if the deal falls within their powers. This is no easy task.”
German MEP Bernd Lange (S&D group) and chair of the European Parliament's Committee on International Trade said: "The ruling today by the European Court of Justice provided clarity, which has gone missing from our trade policy lately. By defining which exclusive competences the EU enjoys and which competences it shares with the member states, the ECJ has settled a contentious issue.
"The ball is now in the court of politics. It is now for us policy-makers to draw the necessary conclusions and determine how to bring the common commercial policy forward in a way that preserves its strength, legitimacy and coherence."
Cefic, the European Chemical Industry Council, said: "While respecting the role of the ECJ in defining such matters, this decision will complicate the adoption of future FTAs and undermine the reliability of the EU as a trading partner, as national and some regional parliaments will need to ratify mixed agreements as well. This could also result in a split into EU-only competence and mixed competence agreements covering investment protection at a later stage, limiting the ambition to conclude deep and comprehensive deals.
"Cefic calls on national and regional parliaments to ratify the EU-Singapore, CETA and EU-Vietnam agreements as free trade agreements are indispensable legal frameworks that have significantly boosted chemicals trade around the world, promoting prosperity and raising living standards. For example, EU chemicals trade with South Korea increased by 29% since the entry into force of the EU-Korea FTA, and similarly, EU chemicals trade with Mexico increased by 49.5 % over the last ten years.”
David Martin, S&D spokesperson on the EU Singapore trade deal and MEP, said:
"The good news is that today’s ruling by the European Court of Justice finally unblocks the EU Singapore trade deal, which hopefully can be referred to the European Parliament soon for ratification.
"The EU’s credibility as an international deal-maker and the very future of our trade policy are at stake and our partners are closely watching our every move."
Paul de Clerck, economic justice programme coordinator at Friends of the Earth Europe, said: “Involving national parliaments in the ratification of free trade agreements will increase the democratic scrutiny and give citizens a stronger voice. All future agreements that include investment tribunals will need to be ratified by national parliaments and we call on parliamentarians to reject all deals that include unfair VIP rights for foreign investors.”
Greenpeace trade policy campaigner Kees Kodde said: “This verdict is a victory for democracy."