Commentary By Yeo Lay Hwee, Director, EU Centre in Singapore
The views expressed in this commentary are those of the author and do not necessarily reflect the views of the European Union or the EU Centre in Singapore.
A printable version of the commentary is available HERE.
Singapore Minister for Trade and Industry Lim Hng Kiang (left) and then EU Trade Commissioner Karel de Gucht at the successful conclusion of the EUSFTA negotiations in Singapore on 16 December 2012.
On 16 May 2017, the Court of Justice, the highest court in the European Union, ruled that the EU-Singapore Free Trade Agreement (EUSFTA) is a mixed agreement and would therefore require ratifications not only by EU institutions but also by the national and regional parliaments of EU member states. This final ruling in itself is not a surprise since last December, a non-binding opinion delivered by the Advocate General Eleanor Sharpston indicated that the EUSFTA can only be concluded by the EU and Member states acting jointly. What is perhaps surprising is that contrary to the opinion, the final court ruling only sets out two investments issues over which there is shared competence between the EU and its member states and hence would require approval by the parliaments of the member states.
In December 2016, Advocate general Sharpston concluded that the EU’s competence should be shared with the member states with respect to the following matters:
• Provisions on trade in air and maritime transport services
• Provisions on government procurement in so far as they apply to transport services;
• Provisions relating to the non-commercial aspects of intellectual property rights;
• Provisions laying down fundamental labour and environmental standards and falling within the scope of either social policy or environmental policy; and
• Dispute settlement, mediation and transparency mechanism
The final ruling from the Court of Justice however concludes that comprehensive trade agreements which include key areas such as transport services, intellectual property rights and labour and environmental standards are under exclusive EU competencies, and hence not subjected to the veto by national parliaments. Only in the areas of portfolio investments and dispute settlement between investors and the state that they cannot be established without member states’ consent.
Thus overall, the final outcome is not as gloomy as it appears. Once the agreement is ratified by the EU institutions, the EUSFTA can be provisionally applied in those areas that the EU has exclusive competence (which is the lion share of the agreement). Provisional application means trade agreement could enter into force once the European Parliament gives the green light and before national and regional parliaments finalise their consent.
A report in Euractiv suggests that in order not to risk being bogged down by national and regional parliaments, the Commission and Singapore should consider splitting the agreement into two halves, one of which could contain all those areas in which Brussels has exclusive competences while the other would need to be approved unanimously at national and regional levels.
The most problematic issue in the FTA is over dispute settlement between investors and the state. When the EUSFTA was initialed in 2013, the investment chapter contains provision for an ISDS (Investor-State Dispute Settlement) mechanism often stipulated in bilateral investment treaties. However, the issue over investor-state arbitration attracted a lot of attention in the context of the negotiations for the Transatlantic Trade and Investment Partnership (TTIP) agreement between the US and the EU. There were criticisms (rightly or wrongly) that existing ISDS mechanism is often too pro-investor and there is a lack of procedural transparency because it provides for foreign investors to sue government in “secretive, ad hoc international tribunals”. Hence, in late 2015, the EU decided to propose an Investment Court System (ICS) to bring improvement in dispute settlements between investors and the state and has requested for the chapter on investment in the EUSFTA to be re-opened to incorporate this new proposal for an ICS.
Now that the final ruling from the Court (which cannot be appealed) has been made, Singapore and the EU can go ahead to scrub the legal text on the investment chapter, and as the Singapore’s Ministry of Trade and Industry says, “work with the European Commission to ratify the EUSFTA expeditiously and have it provisionally applied”.