EU-Singapore trade fight reveals hurdles facing Brexit trade negotiations

16 September 2016. By Lewis Crofts, Poppy Carnell and Matthew Holehouse.

The UK's divorce settlement with Europe will be at least two years in the making. But a future trade deal will take even longer, with the approval process requiring national European parliaments to line up and vote on the text — and potentially veto it.

When national governments get involved, things always get complicated. But for a sense of just how messy it could get for the UK, look no further than this week's court dispute over a deal between the EU and Singapore.

According to EU governments including Germany, Austria, Greece and the Netherlands, the Singapore bilateral trade agreement strayed away from EU competences and ventured into national issues. That meant they all wanted a say.

France, Ireland, Italy and Poland also weighed in — adding substantial red tape to a deal with a city-state of just over 5 million people on the other side of the world.

Herding cats

The risk for London is plain: If the governments of all member states get involved with the UK's trade negotiations with the EU, the process will become lengthy, with success by no means guaranteed.

And it could get worse if regional governments were to get involved — as no doubt many of them would want.

If democratic assemblies in countries such as Hungary or regions such as Belgium's Wallonia all have their say, reaching any kind of deal will become an exercise in herding cats.

Which is why the best chance of getting a trade agreement in place rests with avoiding mission creep. Central to that will be both the scope and the legal basis of a future deal.

Legal basis

An EU court hearing this week over the EU-Singapore bilateral trade pact revealed how a handful of member states can disagree profoundly about the legal underpinning of trading arrangements.

The court revealed that the Netherlands had said the EU treaty's articles 43.2, 91, 100(2), 153(2), 192(1), 194(2) and 207 were needed. But Slovenia only wanted 92(1), 153(2) and 207. While Finland had maintained that 91, 100(2) and 207 were the correct legal bases for the deal.

You can see where this is headed.

National governments were all on the same page, in that they wanted to ensure their parliaments got the final say over the next. But this was clearly no way to resolve a trade deal.

If the same, exacting approach is brought to bear on the Brexit trade talks, the negotiations could become tediously long even before the most sensitive topics have been tackled — such as access to goods, services and the free movement of people.

Scope

The EU has exclusive power to negotiate free-trade agreements with other countries if the scope of the arrangements keeps to the straight and narrow of trade issues.

But the moment negotiations touch upon policy areas that are the prerogative of national governments — such as services, investment protection and intellectual property — then the commission must contend with a pre-EU, Hobbesian world in which sovereign nation-states take care of No. 1.

It all rests with the difference between an "EU competence" deal and a "mixed competence" deal. As soon as trade terms encroach into "mixed competence" then national governments and their interests come into play.

The politically fraught question of which authorities should ratify trade deals has plagued EU institutions since 2009. That was the year when the commission took over the official duty of negotiating trade and investment deals on behalf of the bloc.

The outcome of the court hearing on the EU-Singapore deal will be seen as guidance on how other free-trade agreements involving the EU — such as the deal with Canada, Vietnam and, potentially, a post-Brexit UK — should be ratified.

Unnecessary delays?

Not surprisingly, EU commission lawyers dislike "mixed competence" deals. They argued before the EU's highest court in Luxembourg this week that getting national governments involved can lead to unnecessary delays with no discernible added value.

National governments told the Court of Justice that they accepted the EU has exclusive competence in some areas. But trade terms that touch on services, transport, investment protection, intellectual property and sustainable development fall firmly in their bailiwick, they said.

That argument doesn't augur well for those hoping a UK trade deal can remain a purely "EU competence" because these policy areas are likely to be part of any future Brexit deal.

Not that the commission is buying that argument. The EU's executive arm says it could negotiate these policy areas without national involvement because they fall under the EU's common commercial policy, or CCP, and because the union has exclusive competence in this area according to the EU treaty.

Governments including Germany, Austria and the Netherlands disagreed. Lawyers said that provisions on labor rights and environmental protection — seen, for example, in deals with Korea and Vietnam — were aimed at "standards in non-trade matters" and therefore fell outside the EU's exclusive powers.

Countries such as Greece, Finland and Germany also argued that the inclusion of provisions on maritime transport overstepped the competence of the EU.

In the mix

Brexit — in the words of UK Prime Minister Theresa May — means Brexit. But much of what happens after the two-year divorce negotiations, including the speeding adoption of a trade deal, is still up in the air.

David Davis, the Secretary of State for Exiting the European Union, acknowledged this before the House of Commons Foreign Affairs Committee on Tuesday, when he said the ratification process was one of the risks facing the deal.

"The Canadian treaty, I think, by the standards of the EU, was a very good treaty, but it's gone into the mixed procedure, which takes quite a long time," Davis said, referring to the EU-Canada Comprehensive Economic and Trade Agreement.

"It requires all 36 parliaments in Europe, including the Walloon parliament, to approve it," he said. "So one of the things we have to look at very carefully is how the endgame exists, how the decision procedure works out. Are we going to be sitting around . . . waiting for approval?"

Until the UK triggers formal exit talks, it remains to a large extent the master of its own fate.

But once that step has been taken, lawmakers across the bloc — with their own demands, idiosyncrasies and pet projects — will have the final word.

It won't be pretty. Or fast.

	Eliot Gao