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With the European Court of Justice set to give a potentially important legal opinion on the EU-Singapore free trade agreement, Open Europe’s Aarti Shankar looks at what precedent this might set for the UK.
20 December 2016
This blog has been updated following the ECJ opinion that EUSFTA cannot be concluded without the participation of all of the Member States, published 21 December
The EU is in the process of approving a comprehensive free trade agreement with Singapore [EUSFTA]. EUSFTA, not quite as comprehensive as the EU-Canada deal (CETA), is expected to phase out most tariffs and duties in goods trade, and provide some integration of services. However, although negotiations were completed in October 2014, progress towards its conclusion has stalled while the European Court of Justice [ECJ] rules on the legal classification of the deal. The ECJ is due to publish its opinion on the case tomorrow.
The Court is deciding whether EUSFTA classifies as an “EU-only” or “mixed” agreement: EU-only agreements only require ratification by the European Commission, the Council of the EU, and the European Parliament, who act on behalf of the member states. By contrast, “mixed” agreements require ratification both by EU institutions and by individual member states, creating a lengthy and potentially unstable approval process, as we have seen under the CETA deal.
The method of establishing trade deal “mixity” is a balancing act between the formal division of competences between the supranational and national levels, and the political context of the agreement. For example, while the Commission believed the recent EU-Canada agreement only related to areas of EU-exclusive competence and therefore qualified as “EU-only”, it recognised the political motivation in the Council to allow national parliaments to have a say, and therefore agreed to propose a “mixed” agreement. Yet, where the Commission and Council do not come to an easy compromise, they can refer to the ECJ for an independent decision.
This is the approach they have chosen for the Singapore deal. In fact, the matter has provoked a rare sitting of the Full Court of ECJ judges – a sign that the result of the hearing is expected to set the tone for the EU’s right of action in concluding FTAs in the future. This could prove important for Britain in determining the ease of setting the parameters of a long-term trade relationship with the EU. Indeed, the legal ruling may indicate what can be achieved in an UK-EU FTA – in particular, what level of services integration can be agreed – without requiring the lengthy process of domestic ratification under a “mixed” agreement.
While very little has been published on the details of the September EUSFTA court case, academics have made suggestions as to the arguments the Commission would have used to defend an “EU-only” proposal. Firstly, it would likely have presented the broadest legal interpretation of its exclusive right of action under the Common Commercial Policy [CCP]. In particular, the 2009 expansion of CCP to include Foreign Direct Investment may have incentivised the Commission to argue extensive right of action in investment, including investment protection and potentially portfolio investment.
Secondly, the Commission would likely argue the ‘centre of gravity’ principle established in case law, which maintains that if a provision has more than one objective, the legal basis for the provision should be in accordance with its primary objective. In the case of EUSFTA, the Commission may have argued that, despite disagreements over the division of competences in specific areas, the deal’s principle objective is the promotion and facilitation of trade, an EU-exclusive competence.
Finally, it may have claimed implied exclusivity in areas “where it is necessary to enable the Union to exercise its internal competence, or in so far as its conclusion may affect common rules or alter their scope” (Art 3(2) TFEU). This argument may have been used in relation to provisions on transport, investment and environmental policy.
It is fair to say that a post-Brexit deal for the UK is likely to be a slightly different beast. EUSFTA signals “a stepping stone to greater engagement between the EU and Southeast Asia.” By contrast, in leaving the EU, Britain is disentangling itself from deep European integration.
The aim of this post is not to assess the strength of the legal arguments or to predict the Court’s decision, but to assess what impact the ruling would have on Brexit Britain and the conclusion of a future UK-EU agreement. A decision to propose EUSFTA as “EU-only” could adjust the UK’s understanding of the trade-off it faces between ambition and deliverability in securing a swift post-Brexit agreement with the EU. For instance, agreements covering integration of services, which are currently understood to require domestic ratification (and the potential unpredictability that comes with it), could potentially form part of a fast-track, “EU-only” agreement following the ECJ ruling.
Meanwhile, one could make the argument that the fact that the UK is withdrawing from the EU, rather than integrating with it, should affect the position from which the EU member states approach a UK-EU agreement, and in particular their claim to exercising national competences. At present, no EU member state has national competence over relations with the UK: movement of goods, services, capital and people between the UK and EU nations are agreed at the EU level and enshrined in the treaties. Therefore, a future deal could in of itself see the EU effectively hand back powers to member states over their relations with the UK, rather than transfer it away from them. If the EU-27 acknowledges this, there might be limited political pressure for a post-Brexit deal to be agreed as “mixed” and go through the process of national ratification. However, this does not take into account the dynamic of domestic politics and the feasibility of 27 national parliaments agreeing to have no direct hand in approving a long-term UK-EU relationship.
The importance of this case shouldn’t be overstated but it will give a sense of the legal gymnastics that are involved in EU trade policy, and which may also need to be deployed in UK-EU talks.
The opinion of ECJ Advocate General (AG) Sharpston, published 21 December, finds that “the EU-Singapore Free Trade Agreement (EUSFTA) can only be concluded by the European Union and the Member States acting jointly.” The opinion of the Advocate General is not binding, and will be followed in due course by the ruling of the ECJ. It is true that the judges usually follow the AG’s opinion in non-sensitive matters, but we must await the final ruling to see if this is the case for EUSFTA.
The AG’s opinion is focused on the particular provisions of the EU-Singapore deal, indicating, for example, that it would not be possible to conclude EUSFTA without the participation of the Member States, as this new agreement necessarily forces certain EU countries to terminate their existing bilateral agreements with Singapore.
While there is likely to be increased interest around what this development means for Brexit, it does not really alter our de-facto understanding of how comprehensive trade deals progress within the EU (see the recent Canada deal, for example). As noted above, this opinion would have been most interesting if it had found in favour of an “EU only” deal as this might have opened a new route to a simplified process. But, even if the opinion had found EUSFTA to be an “EU-only” agreement, this would not necessarily have functioned as a perfect precedent for the UK – Britain might well be aiming for a more wide-ranging agreement than Singapore, raising even further questions about divisions of competence.
Far more likely to get a sensible Singapore UK deal.
@Rollo_ I am very familiar with Singapore's FTAs. What would be the benefit for the UK of such an FTA? Singapore's FTAs serve only one purpose: to promote exports from Singapore with very little local content (if the foreign contents are from the region). The UK produces very little that could be exported to Singapore, hence it is likely that the advantage would be asymmetrically for Singapore. Of course, Singapore is a major base for pharma companies (especially GSK) so that would allow GSK to export from Singapore to the UK which may be cheaper than production in the UK. Very bad trade policy..
The EU has clearly paralysed itself in a manner only the EU could do. It seems like this must be deliberate and it is particularly ironic given that economic might is the EU's only asset these days, as explained at the Rob Irving Observing Blog - see here: https://robirvingblog.wordpress.com/2016/12/23/eu-paralysed-by-its-own-ambition,
@robantirving It depends on your point of view. It is still easier to make a deal with the EU than with the US. You have to keep in mind that most of these trade deals do not benefit EU citizens (especially this Singapore deal is benefiting only MNCs and will contribute nothing to the welfate of EU citizens, whilst again bringing up ISDS). As long as countries line up to have access to the EU market whilst offering far less attractive markets in return, there is nothing wrong with a high level of friction. Thid apart from democracy issues: the EU is supposed to be undemocratic? Rejoice in a greater role for the members, especially in the festive season.
But I do not believe in some sort of EU conspiracy to exploit its own governance peculiatities. Certainly the ECJ would not want to be part of something like that. And the Advocate General is British, isn't she?
@riennevaplus @robantirving You forget that the nationality of the Advocate General is supposedly irrelevant, because like a Commissioner she will have sworn an oath to serve only the EU while she is in that office. However without jumping to any conclusion about her personal convictions from her previous career as a lawyer - a lawyer may conscientiously argue a case either way, to the best of his ability - it is perhaps worth noting that it was the blatantly eurofederalist argument that she advanced in the "Metric Martyrs" case which led to a vocal section of the Tory party successfully demanding the legislation which ended up in the declaratory Section 18 of the European Union Act 2011:
"In the ‘Metric Martyrs’ case (Thoburn v. Sunderland City Council  EWHC 195 (Admin)), attempts were made, but rejected, to run the proposition that the legislative and judicial institutions of the EU may set limits to the power of Parliament to make laws which regulate the legal relationship between the EU and the UK. It was argued that, in effect, the law of the EU includes the entrenchment of its own supremacy as an autonomous legal order, and the prohibition of its abrogation by the Member States. This argument was rebutted by the High Court, who noted that Parliament cannot bind its successors by stipulating against repeal, wholly or partly, of the European Communities Act 1972."
At least we haven't been hearing any of that in the recent court cases.
@riennevaplus @robantirving "You have to keep in mind that most of these trade deals do not benefit EU citizens ... "
Well, you prompt me to look up the projected economic benefits of this crucial trade deal between Singapore and the EU, and I find that for Singapore they are slight, less than 1% added to GDP, while for the EU they are negligible:
Which is pretty much par for the course, with the EU-US trade deal being projected as worth about 0.7% of EU GDP while for CETA the benefit would be less than 0.1% added to EU GDP.
In reality it wouldn't matter much if Wallonia blocked all these proposed trade deals with their potential for negligible or marginal one-off increases in the GDP of the EU member states, and nor would it necessarily matter that much if Wallonia blocked the accession of a new member state to the EU; but given the high degree of economic integration which has developed it would matter a great deal more if Wallonia was allowed to disrupt the existing trade between the UK and the rest of the EU.
Hi there. I guess what concerns me is that this could be a pretext for increasing the powers of the executive in the long run. This salami slice (apparently a loss for the executive) is one of several slices towards justifying dangerous powers for the commission. It may not be the ECJ's intention but a judgment against the commission can play nicely into the commission's hands. Time will tell.
@robantirving Apologies, Europe would not be fine with 200-400 residents. Millions..
I think it is also worth making the general point that there is often the possibility of a treaty, or parts of a treaty, being applied provisionally even before it has been fully ratified and come into force.
For example Italy objected to one part of the EU free trade agreement with South Korea which was signed in October 2010, and did not ratify it until September 2015, but nonetheless from July 2011 almost all of it was applied on a provisional basis:
"Provisional application as from 1 July 2011 with the exception of Articles 10.54 to 10.61 and Articles 4(3), 5(2), 6(1), 6(2), 6(4), 6(5), 8, 9, and 10 of the Protocol on Cultural Co-operation."
The opinion of the Advocate-General. If the Court follows it, which is near certain, all MS must ratify the agreement.
Another conclusion that could be drawn is that the EU should stick to making agreements only where it has the clear sole capacity to do so.
This post may not be aiming at assessing the strength of legal argument (why not, that is what counts) but it would be helpful to look at the way the ECJ has been ruling in matters where the competence distribution within the UE structure is in dispute.
The fact that this has been submitted to the Court can indicate (ao of course) two things, first, that the "problems" encountered with the Canadian and Ukrainian trade treaties have led to a reassessment of the way power is delegated to the Commission in these matters (in both cases at the national level there were strong enough frictions to justify distrust among prospective trade partners). Friction and unpredictability are by themselves not unique to the EU, it is even harder to make deals with the US because during the past decade Congress has never ratified a trade treaty entered into by the executive and that has not deterred prospective partners to invest enormous efforts in negotiating with the US. Given that the EU is equally attractive to trade partners, a similar effort would be justified. If there is a consensus among the various constituents that EU trade negotiations should be more predictable and "straightforward", that would lead to either an affirmation of delegation to the Commssion (unlikely but probably sought by Mr Juncker cs) or better rules based on significance that would indicate when the Commission can act rather than represent.
The second thing could be that given the low priority of the Singapore FTA (there are basically no benefits for the EU, similar to the USSFTA, which was concluded mainly for geopolitical reasons) it would be a good test case to look at governance issues before EU and domestic politics interfere and maybe it should remain obscure for excellent reasons.
@riennevaplus The judgement in the Singapore case will have considerable relevance for the EU27 in the future. If positive, the experience with the Walloons will not be repeated.
It is difficult, if not impossible, however, to see it having any impact as far as the Brexit negotiations are concerned, at least in respect of the only aspect where it could apply i.e. the agreement on the UK's "future relationship" with the UK (see below). Such an agreement, if it is to have any substance, will cover areas outside the exclusive competence of the EU (Customs Union and Common Commercial Policy) i.e. it will be mixed.
Legal ingenuity may, however, come into play e.g. an FTA decided strictly within the context of the exclusive competences of the EU and an intergovernmental treaty to cover the rest. The hitch that arises with the latter is that it would have to cover sectors where the EU shares competences with the member states and , where there is agreement to exercise these at the level of the EU, they become, effectively, supranational in character and involve the ECJ.
I suppose it will depend on what is encompassed in the withdrawal agreement mentioned in Article 50 TEU, the scope of that agreement being determined by the European Council.
"In the light of the guidelines provided by the European Council, the Union shall negotiate and conclude an agreement with that State, setting out the arrangements for its withdrawal, taking account of the framework for its future relationship with the Union."
If the political leaders make the sensible decision that the "future relationship" must extend to the future trade relationship, and that must be agreed before the UK's exit, then there will be no requirement for it to be ratified by each of the member states; on the other hand if they take the perverse decision that they wish to maximise disruption to trade, irrespective of what the EU treaties may say, and so it can only be dealt with separately after withdrawal, then that could be a different matter.
@Denis_Cooper What do you think these sentences in Article 50 mean?
"That agreement shall be negotiated in accordance with Article 218(3) of the Treaty on the Functioning of the European Union. It shall be concluded on behalf of the Union by the Council, acting by a qualified majority, after obtaining the consent of the European Parliament."
@Ullamh @Denis_Cooper Well, what they certainly don't mean is:
"The agreement shall enter into force after being ratified by all the Member States in
accordance with their respective constitutional requirements."
@Denis_Cooper What article are you quoting from?
Any of those where a measure expressly needs to be ratified by all member states before it can come into force; you can take your pick from the four cases in the treaties, an easy search:
Which is clearly not the case for the withdrawal agreement made under Article 50, or it would have said so.
@Denis_Cooper Why don't you answer the question I posed? The text you quoted is not in Article 50, is it? And if it isn't, what are you talking about?
Given that May recognised today that some form of transitional agreement will be required, the issue becomes one of how it is to be couched. It will almost certainly be along the lines of what Cameron achieved i.e. decided at the level of the European Council and requiring no further ratification.
Thus, one could hazard a guess that the sequence will be;
(i) withdrawal agreement, decided in the manner outlined in Article 50
(ii) parallel transitional agreement setting out the framework for the UK's future relationship
(iii) detailed negotiations on that future relationship, post-Brexit, which, in all probability, will definitely be a mixed agreement and require ratification by all parliaments in the EU27.
EU27 governments will also, of course, seek prior approval from their parliaments (except, it would seem, that of the UK!) on the agreement under (i) but no country will have a veto in the Council. It can be fairly safely assumed that the consent of the European Parliament will also be forthcoming.
All three strands are, of course, interlinked. Hence the immense complexity of this unprecedented negotiation.
@Ullamh @Denis_Cooper Eh, no, that text or similar is not in Article 50, and that is what I point out. It could have been, it could have been put into the article on withdrawal of a member state just as it was put into the article on the accession of a new member state, Article 49 TEU, but it wasn't.
You can certainly hazard your guess on the likely sequence of events during the negotiations, but it is only your guess.
@Denis_Cooper At least it is based on what is in the legal texts, not on what you think should have been.
@Ullamh @Denis_Cooper I haven't said what should have been put in the legal texts, only what could have been put in but was not; nor do i believe that what is in the legal texts lends any particular support to your guess.
@Denis_Cooper @Ullamh Apparently, the four types of EU competence (and their governance) have not been defined well enough to deal with the Singapore treaty without the specific input of the ECJ. There is not much point in speculating about the treatment of the UK's departure en replacing agreements (transitory or definitive) at this stage, but the rule seems to be, if in doubt, the EU has no exclusive competence, the Council + Parliament trump the Commission and ad hoc unanimity trumps (qualified majorities), at least where treaties with foreign parties are concerned.
Ullamh is right that there are at least two different agreements to be made (three more likely) and that different competences may be involved and that the subject matter may well extend outside the definition of eg customs union issues.
We will have to wait and see exactly what points of law will emerge here.
@Denis_Cooper @Ullamh Maybe this is helpful:
@riennevaplus @Denis_Cooper @Ullamh It's all speculative, because as we know judges can come up with unexpected conclusions.
However I would point out this legal opinion relates to an external agreement between a third country on the one hand, and the EU and all its member states on the other, while in contrast at the time it is made and until it comes into force the withdrawal agreement mentioned in Article 50 TEU will be an internal agreement between one of the EU member states, namely the one which is withdrawing, on the one hand, and the EU and the rest of the EU member states on the other. They are clearly different cases.
If it was intended by the contracting parties to the EU treaties that an Article 50 withdrawal agreement would be subject to ratification by all of the remaining member states, why did they not expressly state that in Article 50?
They expressly stated it for an accession treaty made under Article 49 TEU:
"This agreement shall be submitted for
ratification by all the contracting States in accordance with their respective
and they could easily have done the same for Article 50, but they did not.
Hence my original supposition that much will depend on the scope of the Article 50 withdrawal agreement made while the UK is still an EU member state, as opposed to subsequent agreements made after the UK has left the EU.
"If it was intended..."?
Where did you get that idea? Were the decision-making procedure other than that contained in Article 50 e.g. effective unanimity if requiring ratification at a national level, the entire process could easily be highjacked by any one or more of the parties. The conclusion of Peers in his detailed article coincides with mine in the matter of "legal ingenuity". All negotiating parties, other than the EP, will wish to avoid such a situation. It is no more complicated than cf. comments by May in Commons.
@Ullamh So you think that countries agree and ratify treaties without having any particular intentions about how they should work?
@Denis_Cooper @riennevaplus @Ullamh You would be right if the withdrawal agreement were to be comprehensive in the sense that the "post-Brexit" relationship would be specified (materially a fresh FTA with a soon to be third country). There seem to be very few observers who believe that the whole thing, departure, separation settlement and future relationship would be combined in a single agreement. Anything following Ullamh' sequence (would make a nice title for a Celtic thriller) would contain items to be decided on following the rules described in this opinion. Pretty soon we will have two pearls of judicial wisdom possibly and fatally complicating the referendum/mob decision. Lenin (himself a lawyer with little regard for legal independence) would wake up from his eternal sleep to watch this unfold. With fatally I do not mean: in the sense that Brexit cannot go on in any form, but fatal for the incumbent Conservative politicians who thought that Cameron's legacy was a great career opportunity. Brexit will go on, but not with an easy backroom deal covering the future relationship. Just look at what appr 18% of the Dutch eligible to vote in a (prank) referendum on the Ukraine association agreement achieved: they destroyed everything the Ukrainians really wanted.
@riennevaplus @Denis_Cooper @Ullamh As I pointed out above, the scope of that Article 50 withdrawal agreement will be determined by the European Council. So firstly we await the UK government putting in its formal notice that the UK intends to leave, after which we may or may not find out what the heads of state or government of the other countries plan to do about that. Of course it's conceivable that they would decide to deliberately engineer a "cliff edge," with the UK leaving and present trading arrangements being terminated without new arrangements being put into place for some years afterwards. That would be destructive not just for businesses based in the UK but also for those based elsewhere in the EU, but conceivably they might decide that is what they want to happen.
I would say that we are firmly ensconced in a post-fact world. Facts, however, are obstinate. Stonewall May cannot stonewall forever. Her substantive problem relates to setting out the outline, at least, of what the UK thinks its future relationship with the EU should be. Who else can do it? If she sets the Article 50 clock running without doing so, the three areas of negotiation, already closely linked, will be like a jelly sandwich and near impossible to navigate, for any of the parties.
There is no way round this. All the rest is just noise, that made by the UK political establishment negotiating with itself.
@Denis_Cooper @riennevaplus @Ullamh Japan have already written an open letter telling the UK and the EU not to play games with its business interests, I expect that there have been many other governments saying the same thing behind closed doors. The EU Parliament may want to exact its revenge on Nigel Farage and Boris Johnson, but the National Governments won't destroy the trading and geopolitical relationships with the rest of the world and jeopardise the EU and UK economies. The EU relies on the US for its defence, the IMF to prop up the EURO and the rest of the world for trade and investment. It can't afford to upset the apple cart for petty politics.
The EU and the UK will be starting to negotiate a deal from the point of complete alignment of tariff and non-tariff barriers, If a deal, or a least a transitional deal can't be done within a two years there is something very wrong.
There will of course be time beyond two years to unravel the UK fully from the EU, but that should be a matter of process for individual areas taking into account the realism of moving organisations and people.
@FarmerTony @Denis_Cooper @riennevaplus @Ullamh I doubt anyone in a position of responsibility will devote time to deal with Farage or Johnson in a less than professional manner.