EU, Singapore Finalise Investment Negotiations

23 October 2014

Singapore and the EU announced last week that they had completed the final section of their free trade deal, specifically the investment talks that had been left outstanding when the rest of the pact was completed a year ago.

The discussions have been watched closely given the brewing controversy in other trade negotiations – particularly those recently completed with Canada – over what types of investment protection provisions should be included in such deals.

Before EU negotiators inked their trade deal with Canada (CETA) in late September, German Economy Minister Sigmar Gabriel said that his country would be hesitant to ratify CETA unless investor-state dispute settlement (ISDS) provisions are revised or removed. (See Bridges Weekly, 2 October 2014)

Although Germany has not yet commented publicly on the EU-Singapore deal, some observers have suggested that Berlin could take a similar stance. Neither deal will go into effect without the approval of their respective legislatures. On the EU side, this requires approval both at the level of the European Parliament, as well as within each member state.

The investor protection section of the EU-Singapore deal will first need to undergo a “legal scrubbing” before the signing and ratification processes can begin.

According to the Singaporean Ministry of Trade and Industry, Singapore is the EU’s 15th largest trading partner, and the largest in Southeast Asia.  In 2013, bilateral trade generated over US$75 billion.

The bilateral pact has broadly been touted as a gateway for Brussels to clinch future deals with other members of the Association of Southeast Asian Nations, or ASEAN, given that the two sides had previously hoped to have a region-to-region agreement between them. The EU is currently negotiating trade deals with fellow ASEAN members Malaysia, Thailand, and Vietnam.

Two-track negotiations

While the investor-protection provisions of the EU-Singapore deal remained unfinished until last week, the bulk of the trade negotiations were concluded in late 2012, with the pact then being initialed in September of last year. (See Bridges Weekly, 19 December 2012)

The investment talks began later, however, in light of the new competence given to the EU under the 2009 Lisbon Treaty.

Under the terms of the trade agreement, Singapore and the EU have committed to slash duties on imports, and to cooperate on issues of sustainable development, environmental protection, and social development.

In a statement released Friday, the EU Trade Commission said that the investment-protection chapter would cement the benefits of the larger agreement by “ensuring a stable and fair regime for foreign investors while preserving the rights of the parties to regulate in the public’s interest.”

ISDS mechanism

While trade negotiators have touted the deal’s potential for being a “gateway” to the Southeast Asian region, critics have focused on the inclusion of an ISDS mechanism, which they claim could put at risk hard-won public policy protections.

If the agreement is approved, investors will be allowed to file some complaints – such as in cases of allegedly unfair expropriation or discriminatory treatment – directly against host governments through international arbitration panels, rather than local courts. 

Those opposed argue that EU courts are fully competent to handle disputes, and that arbitration panels cannot be trusted to fully protect domestic labour, environmental, data protection, or food standards legislation or regulations.

Trade officials, in turn, have long stressed that ISDS will protect state’s rights to regulate in the public interest while ensuring “that legitimate government public policy decisions cannot be successfully challenged.”

Long-standing practice

Although the controversy around ISDS has reached new highs in recent months, direct investor-state arbitration is itself not new.  For years, ISDS has been standard practice in most bilateral investment treaties (BITs).

EU member states currently belong to more than 1400 BITs, almost all of which include ISDS provisions.  Germany has fourteen such agreements with other EU states alone.

Speaking last Friday, outgoing EU Trade Commissioner Karel De Gucht told reporters that it would be a “disaster” if an EU member forced Brussels to kill the pacts with either Singapore or Canada over their ISDS provisions.

“We are doing our job on the basis of mandates given to us,” De Gucht added. “We are not doing anything weird.”

TTIP implications?

With negotiations with the US on a proposed Transatlantic Trade and Investment Partnership (TTIP) well underway, the Singapore- and Canada-EU FTAs may serve as testing grounds for the European pulse on ISDS. 

The two FTAs are widely seen as templates for the larger EU-US deal, where Washington has been pushing for the inclusion of an ISDS provision. The investor protection part of the negotiations in that case are currently on hold, after the EU decided earlier this year to hold a public consultation on the subject.

ICTSD reporting; “EU, Singapore conclude investment protection talks,” REUTERS, 17 October 2014; “The arbitration game,” THE ECONOMIST, 11 October 2014; “Germany wants investment clause scrapped in EU-Canada trade deal,” EURACTIV, 25 September 2014.

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