On May 16, 2017, the EU Court of Justice released its long-awaited opinion on the EU-Singapore Free Trade Agreement (“FTA” ) (“the Agreement”) (full text here). Back in July 2015, after the EU and Singapore completed trade negotiations, the European Commission sought clarity on its authority to conclude complex deals.
The following questions submitted by the Commission have now been answered:
I. Does the Union have the requisite competence to sign and conclude the Agreement with Singapore alone?
Answer: No. The Agreement contains certain provisions that require the consent of Member States.
II. Which provisions of the Agreement fall within the Union’s exclusive competence?
- Market access for goods and services (including all transport services, financial services and mutual recognition of professional qualifications); public procurement; and energy generation from sustainable non-fossil sources.
- Protection of direct foreign investments.
- Intellectual property rights.
- Combatting anti-competitive activity and laying down a framework for concentrations, monopolies and subsidies.
- Sustainable development.
- Rules on exchange of information, obligations governing notification, verification, cooperation, mediation, transparency and dispute settlement, unless those rules relate to non-direct foreign investment.
III. Which provisions of the Agreement fall within the Union’s shared competence?
- Non-direct investments (i.e., “portfolio” investments made without any intention to influence the management and control of an undertaking).
- Dispute settlement between investors and states.
IV. Is there any provision of the Agreement that falls within the exclusive competence of the Member States?
So, how does this impact trade negotiations between the EU and the UK? For starters, we now know (as already suspected) that investment provisions will continue to engender complications in the negotiating process. We can expect Member States to continue being particularly vocal in these areas, possibly leading to longer timelines for treaty conclusion.
In the context of Brexit negotiations, from the UK’s perspective it is also helpful to know that the responsibility for financial services – a key focus – lies squarely within the Commission’s sole competence. As such, any agreement on that topic will not likely be subject to the vagaries of individual Member State consent.
With respect to negotiating strategy, the EU and the UK have several options, bolstered by the enhanced certainty set out in this decision, and lessons from the EU-Canada negotiations on a Comprehensive Economic and Trade Agreement (“CETA”). One option would be to push for an FTA framework excluding the above-noted areas of shared competence. Alternatively, the parties could soldier on with the grander scheme of an all-encompassing “comprehensive FTA,” bearing in mind that provisional application of most of the treaty (except for areas of shared competence) could be an option, as in the case of CETA.
Either way, the ECJ’s opinion provides welcome guidance to both the EU and the UK in managing their mutual expectations, as well as those of domestic stakeholders.
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