The Court of Justice of the European Union (CJEU) yesterday delivered its opinion in a case that could have profound implications for the EU’s future trade policy, and set an important precedent ahead of Brexit negotiations.
Ruling on the process for concluding the EU’s free trade agreement with Singapore, the court decided that the deal includes elements that are not within the EU’s exclusive competence, and must therefore be entered into by the EU and each member state jointly, rather than by the EU alone (making it a so-called “mixed agreement”).
However, the areas that the court has found to be within exclusive competence, for example transport, labour and environment provisions, are wider than had previously been thought. Interestingly, the court goes further on this than the advocate general in her opinion on this case.
The detail of how this will be applied to the EU’s FTAs remains to be seen, especially in the case of areas such as social and environmental protection. But, from a UK perspective, this decision is welcome; it should enable the EU deliver trade agreements more effectively.
The Commission had requested the opinion to determine whether the EU is able to sign and conclude the agreement itself, or whether member states themselves also have to individually agree and ratify it. The EU’s exclusive competences are set out in the Treaty on the Functioning of the European Union. Where the EU has exclusive competence in a matter, it alone can act in that area, and member states are unable to do so unless specifically empowered by the EU.
The court has determined that everything in the Singapore agreement is within the EU’s exclusive competence except for two areas: non-direct foreign investment and investor-state dispute settlement (ISDS).
This means that all of the other provisions of the agreement are within the EU’s exclusive competence, specifically:
• access to the EU market and the Singapore market so far as concerns goods and services (including all transport services) and in the fields of public procurement and energy generation from sustainable non-fossil sources;
• the provisions concerning protection of direct foreign investments of Singapore nationals in the European Union (and vice versa);
• the provisions concerning intellectual property rights (including moral rights);
• the provisions designed to combat anti-competitive activity and to lay down a framework for concentrations, monopolies and subsidies;
• the provisions concerning sustainable development, including the obligations concerning social protection of workers and environmental protection; and
• the rules relating to exchange of information and to obligations governing notification, verification, cooperation, mediation, transparency and dispute settlement between the parties, unless those rules relate to the field of non-direct foreign investment.
Investment and investor state dispute settlement have been the most controversial features of trade deals in recent years, and were the cause of the last minute amendments to the EU-Canada agreement, known as CETA. CETA had been treated as a mixed agreement so required the approval of each member state under its own constitutional requirements.
That is why the Belgian region of Wallonia had an effective veto on the deal, forcing certain concessions and interpretive clarifications, in particular on dispute settlement.
It therefore makes practical sense for the CJEU to have found that this sensitive area will still be a competence shared with member states, while taking an expansive position on all other aspects. Indeed, the court has found exclusive competence in more areas than the opinion of the advocate general, who had considered that provisions on certain transport services, non-commercial aspects of intellectual property rights, and labour and environmental standards were matters of shared competence, as well as those on portfolio investment and ISDS.
The decision brings welcome clarity and certainty as the UK and the EU go into the Article 50 negotiations. The critical features of the eventual UK-EU FTA will be within the EU’s exclusive competence and therefore not vulnerable to being rejected by member-state parliaments.
Non-trade areas such as defence and security cooperation will not be affected by this decision. As the Commission’s draft negotiating directives make clear, there are significant areas such as the financial settlement and the role of the CJEU in overseeing any withdrawal agreement that are particular to the Article 50 process and will need to be resolved through negotiation.
There remain issues for the EU’s wider trade deals, as investment and dispute settlement are key interests of trading partners, who will be looking carefully at how to protect their positions without crossing into the territory of mixed agreements.