EU – Singapore Free Trade Agreement: “Mixed” Feelings

Introduction

It would be an understatement to say that the new generation of trade agreements raises complex legal and political considerations. Public opinion and academic literature have strongly opposed the policy objectives underlying the conclusion of these agreements, as well as their conclusion method as such. The latter was recently addressed by the Advocate General of the ECJ, in the context of the ECJ Opinion procedure 2/15.

On 21 December 2016, the Advocate General (the ‘AG’) Eleanor Sharpston QC brought some ‘mixed news’ for the EU-Singapore Free Trade Agreement (the ‘EU-Singapore FTA’). She opined that the European Union (the ‘EU’) does not have exclusive competence to conclude the EU-Singapore FTA, which should be concluded as a ‘mixed agreement’. According to the AG, the EU should conclude the FTA ‘jointly’ with its Member States, as several parts of the agreement fall within the sphere of their shared competence. Although the Opinion of the Advocate General is not binding on the ECJ, the Court will likely concur with her argumentation.

In this brief analysis we will address the findings of the Advocate General and evaluate their impact. Before delving into our analysis, however, it is useful to set the background of the Opinion.

The Road to Opinion 2/15

The negotiations for the conclusion of the EU-Singapore FTA were launched in 2010. In 2013, the EU and Singapore initialled the text of the FTA, which was structured as an EU-only agreement, without the participation of the Member States.

The Commission requested an Opinion from the ECJ under Article 218(11) TFEU with respect to the allocation of competence between the EU and its Member States for the conclusion of the agreement. The view of the Commission is that the EU is exclusively competent to conclude the whole agreement. In general, the European Parliament supports this view. By contrast, the Member States and the Council argue that the agreement should not be concluded as an ‘EU-only’ agreement, as certain aspects of it fall within the shared competence of the EU and its Member States or within the latter’s exclusive competence.

The Advocate General’s Opinion

The AG generally agreed with the Member States and held that the EU-Singapore FTA should be concluded as a ‘mixed agreement’ and not as an ‘EU-only’ agreement.

In particular, the EU may conclude agreements on its own in the areas of its exclusive competence and jointly with the Member States when the competence is shared or remains with the Member States. As regards trade agreements, it should be noted that trade policy falls within the exclusive external competences of the EU under Article 207 TFEU relating to common commercial policy. Accordingly, competence to conclude a pure trade agreement with a third state lies within the EU. However, often the exclusive competence of the EU does not cover the entire scope of the agreement. This is especially true with regard to the new generation FTAs which do not merely address trade-related issues but rather encapsulate a variety of concerns, ranging from sustainable development to labour rights and investment protection. In these cases, the use of mixed form is unavoidable.

The EU-Singapore FTA also constitutes a “very heterogeneous” agreement, as observed by the AG, containing seventeen different chapters. The AG begins her assessment with a review of the legal framework regulating the division of competences and then analyses the chapters of the agreement one by one. She addresses the allocation of competences in detail and identifies components of the agreement that fall within the exclusive competences of the EU, the EU’s shared competences with its Member States, and within the Member States’ exclusive competences.

The AG argued that the provisions of the agreement relating to the following areas fall within the EU’s exclusive competence: (i) objectives and general definitions; (ii) trade goods; (iii) trade and investment in renewable energy generation; (iv) trade in services and government procurement, excluding parts of the agreement applying to transport and related services; (v) FDI; (vi) the commercial aspects of IP rights; (vii) competition and related matters; (viii) trade and sustainable development in so far as the provisions in question primarily relate to commercial policy instruments; (ix) conservation of marine and biological resources; (x) trade in rail and road transport services; and (xi) dispute settlement, mediation and transparency mechanisms in so far as they apply to the parts of the agreement for which the EU has exclusive competence.

Further, she found that the EU and its Member States have shared competence to conclude provisions relating to: (i) trade in air transport services, marine transport services, and transport by inland waterway, including related services; (ii) types of investment other than foreign direct investment; (iii) government procurement pertaining to transport and related services; (iv) non-commercial aspects of IP rights; (v) fundamental labour and environmental standards; (vi) dispute settlement, mediation and transparency mechanisms, in so far as they apply to the parts of the agreement for which the EU has shared competence.

She also noted that her Opinion does not address the issue of material compatibility of the provisions of EU-Singapore FTA, such as the investor-state dispute settlement mechanism, with EU Treaties. Therefore, she concluded that since not all provisions fall within the EU’s exclusive competence, the agreement must be concluded jointly by the EU and its Member States.

The Impact of the Advocate General’s Opinion

The distinction between EU-only and mixed agreements is significant both for the relations between the EU and its Member States and for their relations with third states. As highlighted above, although the AG’s Opinion is not binding, the ECJ will likely adopt a similar approach. If so, it is highly probable that future FTAs will also have to be concluded in ‘mixed’ form. This will hinder the treaty-making activities of the EU and will further perplex its status as an international actor.

Firstly, the joint conclusion of future FTAs will render the negotiations with third states more cumbersome and time-consuming. Each Member State will in essence be able to “block” the finalization of the agreement, especially in view of the fact that each Member State will need to separately ratify the treaty in accordance with its own internal procedure, which may include a referendum or ratification by all federal states. The agreement will also need more time in order to enter into force, the only solution to the problem being the provisional application of the agreement as regards the areas of exclusive competence of the EU. New generation FTAs, such as the EU-US Transatlantic Trade and Investment Partnership (TTIP), may also need to be signed in mixed form and will most likely not survive the ratification process. Nevertheless, the participation of Member States will certainly enhance compliance with the agreement and lead to its smoother implementation.

Moreover, the EU is likely to conclude less ambitious agreements in the future in order to avoid the aforementioned complications. As noted above, new generation treaties contain a handful of provisions that are not related to trade, including environmental and labour standards. These provisions fall within the EU’s shared competences with its Member States, leading the Advocate General to argue that the EU-Singapore FTA should be concluded as a mixed agreement. It is highly probable that in the future the EU will limit itself to the conclusion of pure trade agreements in order to avoid the negative consequences of ‘mixity’.

An ECJ Opinion concurring with the AG’s Opinion will also affect Brexit negotiations. Should the United Kingdom eventually decide to pursue the conclusion of a ‘new, comprehensive, bold and ambitious’ free trade agreement with the EU, the latter will also have to be concluded in mixed form if it contains similar elements with the EU-Singapore FTA. In this case, since each Member State will have to ratify the agreement, the negotiations will be even more intense and burdensome.

Separately, the Opinion was also innovative as regards the interpretation of ‘foreign direct investment’ under Articles 207(1) and 3(1)(e) TFEU. The AG opined that the notion should be interpreted as excluding ‘portfolio investments’, the regulation of which falls within the shared competences of the EU and its Member States.

Nevertheless, as the AG also highlighted, these difficulties have no bearing on the allocation of competences between the EU and its Member States, which is a legal question that can only be resolved by reference to the treaties. The lack of unity and effective treaty-making procedures constitute political considerations, which should not affect the final Opinion of the ECJ.          

Conclusion

It was never easy to conclude a treaty with the EU due to its sui generis status as an international actor. The recent AG Opinion and its potential adverse impact on future treaty-making reveal that the position of the EU in the international scene is more complex than ever. As analysed above, the requirement to conclude EU FTAs in mixed form will lead to lengthier and more demanding trade negotiations with third states, particularly given the Member States’ de facto ‘veto’ powers. In response to these adversities, the EU will likely resort to the conclusion of less ambitious trade agreements in the future, excluding provisions related inter alia to environmental and labour standards. Finally, Brexit might be further complicated as the conclusion of an EU-UK FTA will likely be delayed and jeopardised. It is noteworthy that these legal and practical complications are only the symptoms and not the disease, the latter being the existence of deeper political battles underlying the EU structure.

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