European Court of Justice Rules on EU Competence in Singapore Trade Deal

18 May 2017

The European Court of Justice (ECJ) issued its final opinion on Tuesday 16 May regarding the EU-Singapore trade agreement, deeming that while some aspects of the deal’s current version fall within the bloc’s “exclusive competence,” others will require additional approval from national and regional legislatures.

The final opinion has been years in the making, and had been highly anticipated given its potential to give clarity regarding the bloc’s treaties, specifically in relation to European trade and investment negotiations abroad.

The EU and Singapore concluded negotiations for a free trade agreement (EUSFTA) in December 2012, with related talks on investment being finalised in October 2014. (See Bridges Weekly, 19 December 2012 and 23 October 2014, respectively)

The European Commission started the trade deal negotiations with approval of the Council, while consulting with a Council-appointed panel known as the Trade Policy Committee.

Although the EU and Singapore managed to reach a deal, the opinion released this week explains that the European Commission decided to raise the issue with the ECJ “since differences of opinion became apparent in consultations within the Trade Policy Committee on the nature of the European Union’s competence to conclude the envisaged agreement.”

In particular, the European Commission  asked the ECJ to issue an opinion on the trade pact, asking that the EU’s highest court determine which areas of the planned accord fell under the EU’s exclusive or shared competence, along with whether any terms lie solely within member states’ remit.

According to the Treaty on the Functioning of the European Union (TFEU), an EU member state or one of the EU institutions may ask the ECJ to prepare an opinion on whether a planned agreement is in line with this document and the Treaty on European Union.

Should the ECJ deem that this is not the case, the agreement can only move ahead if changed or if revisions are made to those EU treaties.

Competence issues

When it comes to concluding international deals, the TFEU names a list of areas where the European Union has exclusive competence: customs unions, competition rules necessary for the functioning of internal market, Eurozone monetary policy, some aspects of the common fisheries policy, and the common commercial policy.

That same treaty also cites “principal areas” where competence must be shared with the bloc’s individual member states, such as social policy, environment, transport, internal market, and “area of freedom, security, and justice.”

While noting that the Singapore deal is a “new generation” trade agreement, featuring provisions that go beyond those traditionally included in such negotiations, the European Parliament agreed with the Commission that the deal falls within the EU’s exclusive competence.

However, the European Council and some individual member states argued that the Singapore trade pact had the characteristics of a “mixed agreement.” They suggested that some of the deal’s provisions lack a trade “link” and would therefore qualify as being under shared competence, and said that certain fields such as transparency and non-direct foreign investment are solely within member state competence.

Opinion outcomes

The opinion released on Tuesday outlines which areas of the EU-Singapore trade deal fall within the EU’s exclusive or shared competence.

According to the ECJ, the EU “has exclusive competence” in the EU-Singapore deal regarding goods and services market access; public procurement; non-fossil fuel energy generation; direct foreign investment protections; intellectual property rights; competition rules; sustainable development; and exchanging information in areas that involve mediation, cooperation, and disputes.

Regarding these issues, the ECJ opinion shows some notable differences from an earlier non-binding opinion by Eleanor Sharpston, an advocate general for the court, who had suggested that transport services did not fall under the EU’s exclusive competence, but was rather shared with member states. She similarly said that this also applied to topics such as the “non-commercial aspects of intellectual property rights,” along with the transport services-related aspects of government procurement.

The advocate general also said that the EU and member states shared competence in some sustainable development aspects, specifically those terms “laying down fundamental labour and environmental standards and falling within the scope of either social policy or environmental policy.” Those sustainable development aspects that were under EU exclusive competence were those that “primarily relate to commercial policy instruments.” (See Bridges Weekly, 19 January 2017)

The ECJ’s opinion this week deemed that transport services and all aspects of intellectual property rights and sustainable development provisions fall under the EU’s exclusive competence.

On sustainable development, the ECJ media statement explained that “the objective of sustainable development now forms an integral part of the common commercial policy of the European Union and… the envisaged agreement is intended to make liberalisation of trade between the European Union and Singapore subject to the condition that the parties comply with their international obligations concerning social protection of workers and environmental protection.”

The court did find two areas of the EU-Singapore pact that would require ratification at the national level. These involve “non-direct foreign investment (‘portfolio’ investments made without any intention to influence the management and control of an undertaking) and the regime governing dispute settlement between investors and states.”

The opinion also makes specific findings related to the hot-button topic of investor-state dispute settlement, which has drawn scrutiny both from the general public as well as politicians and trade watchers. The EU has sought in recent years to revise its approach to the issue, with more recent trade deals now including an “investment court system.” (See Bridges Weekly, 2 March 2017)

“The regime governing dispute settlement between investors and states also falls within a competence shared between the European Union and the member states. Such a regime, which removes disputes from the jurisdiction of the courts of the member states, cannot be established without the member states’ consent,” the ECJ media statement said.

EU officials respond

The result drew a quick response from EU Commission officials along with European Parliament lawmakers, who pledged to collaborate in determining their future approach to the bloc’s trade negotiating policy.

“About the ECJ opinion on the Singapore trade agreement: This gives us very welcome [and] much-needed clarity about how to interpret EU Treaties,” said EU Trade Commissioner Cecilia Malmström on social media site Twitter.

“Opinion should put us on solid footing for the future. I look forward to working [with] governments [and] European Parliament to define way forward,” she continued.

Margaritis Schinas, Chief Spokesperson for the European Commission, said that President Jean-Claude Juncker had “anticipated it with CETA decision last year,” referring to the EU’s trade and investment deal with Canada.

The Comprehensive Economic and Trade Agreement (CETA) was submitted by the European Commission for approval as a “mixed agreement,” indicating that some areas fell under EU exclusive competence and that other provisions would need approval from national and regional parliaments before they can be applied. (See Bridges Weekly, 7 July 2016)

The various groups within the EU’s 751-seat legislature have also issued their own responses to the ECJ ruling, ranging from welcoming the clarity it provides for the bloc’s trade policy agenda to warning about its potential implications for the EU’s credibility in front of its negotiating partners.

The chamber’s trade committee is due to take up the subject, with Bernd Lange, the parliamentarian who chairs that panel, also praising the clarification provided by the court.

“EU institutions must now respond swiftly to ensure that the EU’s credibility and strength in trade policy and negotiations are not hampered. The EU must speak with a single voice. The International Trade Committee will be in the lead in this debate,” Lange said.

Wider implications

In the wake of the outcome, analysts have been quick to predict what this opinion may mean for the bloc’s ongoing or planned trade negotiating agenda, which includes accords with economic giants such as Japan along with the highly complex Brexit negotiations for a future EU-UK agreement.

While the ECJ opinion is specific to the EU-Singapore accord, analysts suggest that it could have significant implications for how the European Commission approaches trade and investment talks going forward, particularly given the added complexity of moving through national approval processes. (See Bridges Weekly, 8 December 2016)

Meanwhile, Singaporean trade officials have pledged to collaborate with the EU as it proceeds with its ratification efforts.

“Singapore respects the internal processes of the European Union and looks forward to the formal entry-into-force of the EUSFTA as soon as all EU member states have ratified provisions under their competence,” said Singapore’s Ministry of Trade and Industry in comments to the Straits Times.

ICTSD reporting; “Singapore responds to European court decision on EU-Singapore Free Trade Agreement,” THE STRAITS TIMES, 16 May 2017; “EU’s top court: Trade deals must be ratified at national level,” POLITICO, 16 May 2017; “Court Ruling on EU-Singapore Pact Could Give the U.K. Brexit Clues,” BLOOMBERG, 15 May 2017.

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