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17th Jan 2022

Trade deal ratification needs member states, EU court says

  • Dispute settlement courts have been one of the issues that turned public sentiment against trade deals (Photo: Eszter Zalan)

The EU’s top court ruled on Tuesday (16 May) that the EU-Singapore trade deal needs the ratification of member states, making future trade deals more difficult to conclude.

The decision could make a post-Brexit trade deal easier if the UK and EU leave out investments, or deal with them in a separate agreement.

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The European Court of Justice (ECJ) in its ruling said that the 2013 free trade agreement with Singapore cannot be concluded by EU ratification alone in its current form, as it has elements that do not fall under the exclusive powers of the EU.

Trade is an exclusive competence of the EU - set out in the Treaties - therefore this means that the European Commission usually has full say over trade deals with non-EU countries.

However, the court argued that two provisions in the EU-Singapore agreement - non-direct foreign investment and dispute settlement between investors and countries - do not fall under the EU's exclusive competence. Therefore, national and regional parliaments will also need to approve it.

The dispute settlement mechanism set up by the deal "removes disputes from the jurisdiction of the courts of the member states, [and] cannot be established without the member states’ consent," the Luxembourg-based court said in a press release.

In its decision, however, the court has narrowed the competences it shares with the EU member states.

In her non-binding opinion last December, the court’s advocate general, Eleanor Sharpston, had gone much further.

Sharpston had also included trade and public procurement in transport services, intellectual property rights, and labour and environmental standards among shared competences.

All in all, this means that the Singapore trade deal will have to go through a tortuous ratification process.

The EU commission, which had asked the ECJ to clarify the matter, could also decide to split the deal into two parts: one with full EU competencies, with the other being subject to the approval of member states.

UK trade deal

The ruling could also have an impact on any future post-Brexit deal.

The decision means that - unless the UK and the EU want to include an investment dispute settlement system or non-direct foreign investment in the post-Brexit trade deal - it will not need to go through the lengthy process of being ratified by some 38 national and regional parliaments.

UK prime minister Theresa May was keen to avoid a long ratification process, which could have taken years to reach completion and created instability.

May wants to wrap up the trade deal within the two-year period provided for exit negotiations from the EU - a timetable deemed unrealistic in Brussels.

The Luxembourg-based court, loathed in London, might have actually made it easier for the UK prime minister to complete a trade deal if they leave out investments, or deal with them in a separate agreement.

The European Council can also provisionally apply free trade agreements - which include competences shared with member states - without a legal time limit.

But there are still no guarantees that May and her government can reach such an agreement within the two-year negotiating process.

Clearer, more difficult

While the ruling provides much-needed clarity on the EU's shared and exclusive competences, it will make future trade deals far more laborious.

In this particular case with Singapore, the European Commission and the European Parliament had asked for clarification from the court because the deal is seen as a blueprint for more complex free trade agreements in the future.

The commission had argued that it had the right to sign and conclude the agreement, seeing the area of trade as its exclusive competence.

Member states said some parts of the deal fall under shared competences with the EU, and some should be the sole decision of national authorities.

The court said the EU has exclusive competence on access to the EU single market for goods and services, including all transport services, public procurement, protection of direct foreign investments, provisions concerning intellectual property rights and sustainable development, anti-dumping rules, and dispute settlements (except for investments).

Canada conundrum

Putting the investment courts in the spotlight could spell trouble for other trade deals such as Ceta, the trade agreement reached with Canada.

The Ceta deal also went through a drawn-out process of talks at the regional, national and EU level, leaving many EU officials frustrated.

Last October, the government of the Belgian region of Wallonia almost torpedoed the deal when it presented last minute demands for changes, including criticisms on the investor dispute settlement system.

The European Commission welcomed the ECJ ruling on Tuesday, saying it will carefully assess it and "engage with the European Parliament and Member States on the way forward."

After the ruling, MEP Bernd Lange, chairman of the trade committee at the European Parliament, said the decision widened the EU’s competences on trade rules.

“[The] EU institutions must now respond swiftly to ensure that the EU’s credibility and strength in trade policy and negotiations are not hampered,” he said.

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