EU court ruling on Singapore trade will have major post-Brexit impact

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While meaningful engagement on Brexit has stalled pending the outcome of this week’s Westminster elections, last month’s ruling from the EU’s highest court regarding the EU/Singapore Free Trade Agreement (FTA) contains useful guidance on the timing and scope of the forthcoming negotiations with the UK.

Bilateral talks between the European Commission and Singapore began in early 2010 and concluded in the autumn of 2014. The FTA includes commitments on subject matters such as the reduction of tariffs plus a range of other trade liberalisation measures.

The final text of the FTA was settled in June 2015. At the same time, the Commission asked the European Court of Justice (ECJ) whether the EU has exclusive competence to sign up to the entire deal. If not, the ECJ was also requested to stipulate which FTA provisions fall under the shared competence of the EU and its Member States.

In its May 16 opinion, the ECJ found that the answer to these questions largely depends on whether the relevant provision of the FTA has a specific link with the trade areas of exclusive EU competence as defined in its common commercial policy under Article 207(1) of the Treaty on the Functioning of the EU (TFEU).

In addition, the EU, also, has exclusive competence regarding measures governing cross-border transport services under Article 3(2) of the TFEU.

Simply put, the ECJ analysed the relevant provisions of the FTA before deciding whether each one should go in the ‘exclusive competence box’ or the ‘shared competence box’.

The court found the FTA’s provisions on market access for goods and services, public procurement, foreign direct investment of Singapore-based natural or legal persons in the EU or vice versa, protection of intellectual property rights, competition and sustainable development – ie social protection of workers/environmental protection – all fall within Article 207(1). It also considered provisions on maritime, rail and road transport all come under Article 3(2). This means that all of these areas fall within the exclusive competence of the EU.

However, the Court considered that the FTA’s protection provisions on non-direct foreign investment between the EU and Singapore fall outside the common commercial policy. (An investment is seen as ‘non-direct’ where it does not allow the investor to participate in the management of the relevant target business.)

The ECJ also found that an FTA mechanism allowing a Singapore-based investor to submit a claim to arbitration, thus denying jurisdiction to a national court, requires the consent of all member states – therefore, these areas are subject to shared competence.

This distinction between exclusive competence and shared competence has a major impact.

Anything in the former box requires EU consent only whereas anything in the latter box is a so-called mixed agreement which requires the consent of the EU plus each of its current 28 member states.

As is clearly evidenced by last year’s initial decision of the parliament of Wallonia in Belgium to reject the Comprehensive Economic and Trade Agreement (CETA) between the EU and Canada, seeking the approval of each member state is both fraught with uncertainty and prone to delays.

Given EU’s exclusive competence under Article 50 of the Treaty on European Union, the ECJ’s ruling is not relevant to any withdrawal agreement with the UK.

However, the court’s findings are likely to have a major impact on any transitional arrangements which should come into force if and when the UK leaves the EU.

In addition, the May 16 findings are highly significant in the context of any future trade agreement between the EU and the UK.

If any transitional arrangements/future free trade deal stick to the areas of exclusive EU competence, getting the necessary approvals on the EU-side is likely to be much less challenging.

However, this means that Ireland won’t have its individual say. On the other hand, if the UK wants a deal on any matter of shared competence, its negotiators need to be prepared for delays allied to the distinct possibility of strong resistance at national level.

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