National lawmakers must ratify EU-Singapore deal, court finds

16 May 2017. By Joanna Sopinska.

EU national parliaments should approve the bloc's trade agreement with Singapore because some aspects of the deal fall under the shared competence of member states, Europe's highest court said today.

Non-direct foreign investment and provisions on an investor-state dispute settlement mechanism fall outside of the EU's exclusive competence and require approval by the bloc's lawmakers, according to the EU's Court of Justice.

The legal opinion means the ratification process for all similar EU trade deals in the future — including an accord with the UK after Brexit — will take longer and carry more risks as nearly 40 parliaments and regional assemblies will have to ratify agreements.

A recent standoff over the ratification of the bloc's trade deal with Canada by EU governments shows how difficult this process can become in countries such as Belgium, where all regional parliaments must give their approval.

The European Commission welcomed today's opinion, but stopped short of indicating its impact on future trade deals.

"The commission will now carefully assess and analyze the opinion of the court and will continue engaging with the European Parliament and member states on the way forward," a spokesman for the EU executive said.

Trade experts say the opinion might prompt the commission to exclude the two fields of shared competence from future deals to avoid national ratification.

The court drew "very clear dividing lines" today, making "the EU-only conclusion of future trade agreements significantly easier and politically uncontroversial," said David Kleimann, an international trade researcher at the European University Institute in Florence.

Singapore and the EU initialed the trade agreement in 2013. The commission asked the Court of Justice in late 2015 for guidance on how the deal needed to be ratified.

Today's legally binding opinion addresses this question only, as the court did not analyze whether the content of the agreement is compatible with the EU treaties.

Power struggle

The opinion is expected to resolve a drawn-out power struggle between the EU executive, which negotiates commerce accords, and EU governments, which alongside the parliament ratify final deals.

Since the Lisbon treaty entered into force in 2009, extending the scope of the bloc's competence over commercial policy, the commission has insisted that the EU's institutions alone need to ratify trade agreements such as the EU-Singapore pact.

But the bloc's governments have disagreed, arguing that certain elements of the deal with Singapore also required the backing of their parliaments and regional assemblies.

The main bone of contention has been portfolio investment — a type of investment where a foreign investor buys shares but doesn't participate in the company's management and control. The Lisbon treaty failed to address this issue, leaving room for interpretation for both EU governments and the commission.

In today's opinion, the Court of Justice followed the advice of Advocate General Eleanor Sharpston from last December and concluded that provisions on portfolio investment fall under shared EU competence.

It also confirmed that basic market-access arrangements for goods and services — provisions linked to foreign direct investment, competition, access to public contracts and rules on renewable energy — fall under the EU-only competence.

Narrower scope

But judges disagreed with Sharpston on several other points. They found that provisions on transport services, sustainable development and intellectual property rights are of exclusive EU competence. Sharpston had found that these parts of the deal fell under shared competence.

The court's opinion means these chapters could come into force more quickly under the provisional application procedure, which doesn't require ratification by national parliaments.

Member states also have the right to speed up the application of those parts of the deal that fall under shared competence. Such a decision requires political consensus among all the bloc's governments.

In the case of the deal with Canada, member states decided to trigger earlier application of certain provisions on maritime transport services, which until now have required national ratification.

Only those elements of the agreement that fall under exclusive national jurisdiction cannot be applied provisionally.

But today's opinion doesn't single out such aspects in the EU-Singapore deal.

Investment disputes

The court concluded that provisions on the dispute settlement mechanism, which allows foreign investors to sue governments for unfair treatment, come under shared EU competence.

This means that, contrary to what Sharpston suggested, the EU can't sign up for such a mechanism without prior approval by national lawmakers.

The bloc's deal with Singapore includes the controversial investor-state dispute settlement mechanism. ISDS, modeled on commercial arbitration, has faced public criticism in the EU for being obscure and discriminatory.

Campaigns against ISDS in EU member states including Belgium, France and Germany prompted the commission to replace the mechanism with a new court-like dispute settlement system.

Singapore and the EU recently started redrafting this part of the agreement.

But the planned change will have no consequences for the ratification process, because the court didn't analyze the dispute settlement mechanism's format.

The EU-Singapore accord would make it easier for European car manufacturers such as Volkswagen and Fiat to sell in Singapore, and mutually provide greater access for the banking, insurance and other financial services. Singapore is the EU's top trading partner in the Association of South-East Nations.

Last year, the EU shipped more than 30 billion euros ($31.2 billion) of goods such as food, fuel, chemicals and machinery to Singapore, and imported products worth 19 billion euros. The bloc exported more than 25 billion euros of services to Singapore in 2015, and imported Singaporean services worth almost 21.5 billion euros that year.

The case reference from the court is Avis 2/15.