CJEU rules on EU’s proposed free trade agreement with Singapore and the possible implications for Brexit

Posted in UK and EU legal framework Transport

The Court of Justice of the European Union (CJEU) has decided that the free trade agreement agreed by the EU with the Republic of Singapore (the EUSFTA) is a mixed agreement and will therefore need to be signed and concluded by each EU Member State. The decision could have implications for how any future trade agreement between the UK and the EU might be concluded.

The EUSFTA is a comprehensive “new generation” free trade agreement. It extends beyond reducing  tariffs and non-tariff barriers to trade in goods and services and includes provisions relating to protection of intellectual property, direct and indirect investment, liberalisation of procurement, competition policy and the promotion of sustainable development.

The question before the CJEU hinged upon whether the EU would have the competence to negotiate such an agreement on behalf of the EU Member States but without a need for them to sign and conclude the agreement. The EU Commission argued that it did have such a right by virtue of Article 3(1)(e) of the Treaty on the Functioning of the European Union (TFEU) which gives exclusive competence to the EU in the area of common commercial policy and also Article 3(2) which gives exclusive competence to the EU to enter into international agreements where authorised by a legislative act or where this is necessary to enable the EU to exercise its internal competence. 

In her opinion given on 21 December 2016, Advocate General Sharpston found that the EU did not have exclusive competence to conclude the EUSFTA. Although large parts of the EUSFTA fell within the exclusive competence of the EU, there were a number of areas of the treaty in which such competence was either shared with the Member States or fell within the exclusive competence of the Member State. The Advocate General identified these areas as including provisions relating to trade in certain transport services, investment other than foreign direct investment, and certain provisions relating to labour and environmental standards. Although the Advocate General recognised that a requirement for each EU member state to sign and conclude the EUSFTA could hinder the EU’s speed and agility in concluding similar international free trade agreements, such practical considerations could not overcome a lack of competence afforded to the EU in the relevant areas. The Advocate General raised the possibility of including areas of shared competence such as non-direct foreign investment within a separate agreement so as not to delay the implementation of core areas of a free trade agreement for which the EU has exclusive competency.

The judgment of the CJEU has confirmed the overall conclusion reached by the Advocate General – the EUSFTA is a mixed agreement requiring ratification by all EU Member States. However the CJEU found that the only areas of shared competence between the EU and the Member States were in respect of non-direct foreign investment and in the regime for dispute settlement between investors and Member States. As such the areas in which the EU is entitled to exercise exclusive competence have been expanded significantly. For example the negotiation and conclusion of international agreements in the field of transport are excluded from the common commercial policy by virtue of Article 207(5) of the TFEU. However the CJEU found that Article 207(5) applied to transport services and services related to transport provided that the “latter are inherently linked to the physical act of moving persons or goods from one place to another”.  The CJEU therefore distinguished services such as aircraft repair and maintenance involving the removal of an aircraft from service as not being inherently linked to the movement of persons and goods and thus part of the common commercial policy rather than falling under the Article 207(5) exemption. As such the EU had exclusive competence in this area.  

So what does this all mean for Brexit? Well there are obvious parallels between the EUSFTA and the “bold and ambitious free trade agreement” which the UK would like to conclude as part of the Article 50 negotiations. Following service of the Article 50 notice, the clock has started to run on the 2 year period prior to the UK’s exit from the EU. Ratification of any UK/EU free trade agreement in each EU Member State could be a cumbersome process which eats further into the limited timetable for negotiation. If the UK is to avoid the so-called “cliff edge” of leaving the EU without a trade deal then it makes it more likely that transitional arrangements will need to be agreed as a priority.

However as this judgment reduces the areas where Member States share competence, it does create a possibility that a more streamlined process could be adopted in future. Any free trade agreement between the EU and the UK is likely to be one of the most comprehensive free trade agreements concluded by the EU. Could elements where there is shared competency be identified and dealt with separately from areas where the EU has exclusive competency as the Advocate General suggested?

For the EU Member States the judgment represents an additional assumption by the EU of competency under the auspices of the common commercial policy when negotiating international agreements. That may be controversial in some Member States. However the EU has often been criticised for the slow and cumbersome way in which it negotiates free trade agreements. Perhaps this judgment presents an opportunity for the EU to refine this process in future.

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