On 16 May 2017, the Court of Justice of the European Union (“CJEU”) issued a binding opinion relating to the competence of the EU to independently sign and conclude the free trade agreement with the Republic of Singapore (“EU-Singapore FTA”).
The opinion dealing with the EU-Singapore FTA is of outmost importance since this agreement is one of the first of the so-called “new generation” free trade agreements. These “new generation” free trade agreements, in addition to classical provisions relating to the reduction of customs duties and tariff barriers, contain provisions on intellectual property protection, investment, competition, and public procurement.
The decision of the CJEU, which is considered one of the most relevant decisions on EU trade policy in the last years, has implications on the pending and future negotiations of free trade agreements by the EU (including possible future free trade negotiations with the UK). Likewise, the opinion rendered by the CJEU casts doubts upon the practicality of comprehensive free trade agreements with the EU that contain investment related provisions.
The binding opinion of the CJEU
The CJEU confirmed that the EU-Singapore FTA is a mixed agreement and, therefore deduced that the EU cannot independently conclude it in its current form.
In the opinion, the CJEU confirmed a wide spectrum of areas that fall within the exclusive competence of the EU including, inter alia, goods and services, intellectual property, competition and direct foreign investments. However, the CJEU also inferred that the EU does not have exclusive competence to conclude an international treaty insofar as it relates to non-direct foreign investments and investor-state dispute settlement mechanisms.
Therefore, provisions aiming at the protection of non-direct investments covering, for example, the purchase of company securities with the sole intention of making a financial investment (without aiming at having influence on the management and control of the undertaking) require the approval of each member state of the EU.
Similarly, relating to the investor-state dispute settlement mechanism contained in the EU-Singapore FTA, the CJEU concluded that the removal of the disputes from the jurisdiction of courts of the members of the EU cannot be considered of a pure ancillary nature. Therefore, the CJEU decided that the establishment of such a dispute settlement mechanism cannot be completed without the consent of the members of the EU.
Implications on pending negotiations of free trade agreements (including possible negotiations with the UK)
The decision of the CJEU provides clarity on the subject matter of free trade agreements that can be concluded solely by the EU. The position adopted by the CJEU substantially confirms the position of the EU Commission and the EU Parliament on trade issues and reflects a broad understanding perception of the competences of the EU in this regard.
However, irrespective of the broad understanding of these issues, the opinion of the CJEU also means that provisions relating to the protection of non-direct investments and investor-state dispute resolution mechanisms in free trade agreements entered into by the EU and third countries require the approval of each member state as well.
Thus, agreements containing provisions on these matters face possible delays regarding their approval process. This could already be observed when the parliament of Wallonia (Belgium) opposed the Comprehensive Economic and Trade Agreement between the EU and Canada in October 2016.
On this basis and with the purpose of facilitating the conclusion and entry into force of free trade agreements between the EU and third countries, the decision of the CJEU paves the way to the split between exclusive and mixed agreements about trade matters.
This decision of the CJEU will likely also have an impact on the free trade agreement negotiations between the EU and the UK after Brexit. An agreement between the EU and the UK focusing on trade issues within the exclusive competence of the EU would require a qualified majority in the EU Council (in accordance with Article 218 of the Lisbon Treaty) and not, in addition, the agreement of all EU member states as it would be the case for mixed agreements. Thus, the scope of a possible agreement between the EU and the UK could be carved out to exclude matters that would require the approval of each EU member state. This, however, will very likely encounter resistance from EU member states that are not in favor of an agreement being concluded with the UK based on the exclusive competence of the EU alone.
KNOETZL is a leading Austrian law firm dedicated to dispute resolution. The firm specializes in litigation, arbitration, asset recovery/tracing, business criminal law, compliance, and corporate crisis management.
For more information please contact:
Emmanuel Kaufman | Partner