In mid-May, the European Court of Justice (“ECJ”) gave its Opinion on the EU competence to conclude the Free Trade Agreement (“FTA”) with Singapore.
This is the first FTA to include investments, public procurement and sustainable development. The ECJ’s Opinion resolves the existing dispute between the EU Member States and the Commission with regard to the division of competencies under the Lisbon Treaty, acknowledging that EU has exclusive competence over a large part of the agreement.
The EU-Singapore FTA
The FTA negotiations had lasted roughly 3 years, having started in 2010. The agreement was designed in such way that it was sufficient for the EU alone to enter it, without the need to involve the EU Member States, which could have potentially caused delays with approval and ratification.
Although Article 3(2) of the Treaty on the Functioning of the European Union gave exclusive competence to the EU to conclude FTAs, which go beyond aspects related to services, investments and trade, the Member States did not consider that the EU-Singapore FTA fell within the EU exclusive competence and argued that the Member States should be party to the agreement.
In essence, the ECJ concluded that:
- The Singapore-EU FTA cannot be concluded by the EU exclusively, because of the competence areas that are shared with the Member States and namely, non-FDI investments as well as the investor-State dispute settlement regime.
- The Court found exclusive competence to enter into the remaining of the agreement and in particular, exclusive competence was found with regard to transport, IP, sustainable development and environmental protection.
The Opinion of the Court is in line with the non-binding opinion given by AG Sharpston QC in December 2016, although the Court takes a broader view. AG Sharpston QC noted that whilst the EU has non-exclusive competence to conclude most of the parts of the agreement, with the exception of bilateral investment treaty (BIT) termination with Member States, it did have exclusive competence to enter into an agreement with regard to maritime, air transport, non-FDI and non-commercial IP aspects.
It is interesting to note that, in its Opinion, the Court found that the EU does not have exclusive competence to agree on investor-State dispute settlement aspects. The Court noted the following aspects:
- Both the EU and the Member States can be party to arbitral proceedings to determine investors’ claims;
- The consent of a Member State to arbitration is subject to the withdrawal of claims submitted to a domestic court with regard to the same treatment as alleged to have breached the provisions under the Investment Protection section;
- While it is possible for a claim against a Member State to be allowed in that State’s domestic court, this is within the discretion of the investor.
The significance of this Opinion goes beyond the specifics of the EU-Singapore FTA. It represents a good indication of the boundaries within which the UK will be able to conduct its negotiations post-Brexit.
The upside of this Opinion is that if a future FTA will contain provisions which are in the exclusive competence of the EU, there will be no need for ratification by the Member States. This can arguably represent an advantage from a time-efficiency perspective, as there will be no need to involve separate national/international parliaments.
The potential downside concerns the lack of dispute resolution provisions in the FTAs, which are of the essence, especially in the context of non-FDI.
In a nutshell, the EU FTAs will be mixed in the sense that they include broad investment protection to cover non-FDI and/or investor-State dispute settlement provisions to prevent disputes between Member States and foreign investors from being resolved in the domestic court of the Member States.
This is an issue for states that seek to negotiate and conclude FTAs with the EU in the future, as there is a risk that a particular FTA will contain no proper dispute settlement mechanisms, rendering it ‘toothless’.