On Tuesday the Court of Justice of the European Union (CJEU) ruled that the EU-Singapore Free Trade Agreement (EUSFTA) in its current form needs to be ratified by Member States as it covers shared competence matters.

The Court’s ruling considers only non-direct foreign investment and investor-state dispute settlement as shared matters, leaving all the rest to the EU’s exclusive competence. Despite appearances, legally this could be good news for other trade deals. But the Union’s history, Brexit and the CETA saga prove that politics can trump law, and that Member States do not easily concede defeat in the competence war with Brussels.

Not a big deal…?

The CJEU opinion on the EUSFTA is binding and not appealable, but this is nothing ground-breaking. Tuesday’s opinion only looked at whether the EU had exclusive competence to conclude the agreement without ratification of member states. It was as much awaited as it was predictable, in light of Advocate General Sharpston’s opinion last December which considered several issues as shared – notably some aspects of transport services, intellectual property, and labour and environmental rights. The question was not really whether the EUSFTA was going to be mixed – but rather to what extent.

The Court ruled that the EU and Member States have shared competence only on ‘portfolio’ investments (without aim to control/manage an undertaking), rules on obligations linked to non-direct foreign investments, and investor-state dispute settlement, “which removes disputes from the jurisdiction of the courts of the Member States […] and cannot, therefore, be established without the Member States’ consent.”[1]

Setting most of the Advocate General’s opinion aside – which is unusual – the CJEU ruled that all other aspects of the agreement fell under exclusive EU competence: mutual market access for goods and services (including all transport services, public procurement and sustainable non-fossil energy generation), as well as protection of foreign direct investment (FDI) and intellectual property rights, cooperation on competition and antitrust, sustainable development, and all rules on the parties’ relations, including state-to-state dispute settlement (except on non-direct foreign investment).

Brexit and beyond

Many saw the opinion as further proof that a post-Brexit EU-UK trade agreement cannot be concluded quickly, as all Member States will need to ratify it according to their national procedures – a total of 38 parliaments. However agreements can apply provisionally pending ratification, and the UK is not seeking an investment deal. Conversely, by defining the scope of EU competence the opinion removes uncertainty and gives an indication of how far the EU can push its exclusive competence in trade agreements. The answer is pretty far, which is actually good news for Brexit.

This development provides much-needed guidance for the EU’s new generation trade agreements currently being discussed with Mexico, Japan and many others. It also reinforces the trend of judicial expansion of EU competence. By making investor-state dispute settlement a shared competence, the opinion points to the fact that to conclude agreements alone the EU needs to split trade from investment – which is very unlikely – or to limit investment dispute settlement to state-to-state arbitration, among other solutions.

It’s all about competence

As is often the case in Brussels, the issue boils down to the question of more or less EU. The Commission, with the support of the European Parliament, asked the Court to determine whether the EU could legally conclude the agreement by itself. The Council and Member States disagreed, politely submitting their views. The CJEU with this decision confirmed it favours strengthening EU competence over more restrictive interpretations. Arguably, this is also one of the reasons why the UK so badly wants to escape its jurisdiction.

[1] Opinion 2/15, para 292