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Court of Justice: EU cannot conclude free trade agreement with Singapore without member states

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of the member states as the provisions of the agreement relating to non-direct foreign investment and to dispute settlement between investors and states do not fall within the exclusive competence of the European Union, the Court of Justice of the European Union has ruled.

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About this case:

On 20 September 2013, the European Union and Singapore initialled the text of a free trade agreement. The agreement is one of the first ‘new generation’ bilateral free trade agreements: a trade agreement which contains, in addition to the classical provisions on the reduction of customs duties and of non-tariff barriers in the field of trade in goods and services, provisions on various matters related to trade, such as intellectual property protection, investment, public procurement, competition and sustainable development.

The Commission submitted a request to the Court of Justice for an opinion to determine whether the European Union has exclusive competence enabling it to sign and conclude the envisaged agreement by itself. The Commission and the Parliament contend that that is the case. The Council and the governments of all the member states which submitted observations to the Court 1 assert that the European Union cannot conclude the agreement by itself because certain parts of the agreement fall within a competence shared between the European Union and the member states, or even within the exclusive competence of the member states.

In its opinion delivered today, the court, after making it clear that the opinion relates only to the issue of whether the European Union has exclusive competence and not to whether the content of the agreement is compatible with EU law, holds that the free trade agreement with Singapore cannot, in its current form, be concluded by the European Union alone, because some of the provisions envisaged fall within competences shared between the European Union and the member states. It follows that the free trade agreement with Singapore can, as it stands, be concluded only by the European Union and the member states acting together.

In particular, the court declares that the European Union has exclusive competence so far as concerns the parts of the agreement relating to the following matters:

  • access to the EU market and the Singapore market so far as concerns goods and services (including all transport services) 2 and in the fields of public procurement and of energy generation from sustainable non-fossil sources;

  • the provisions concerning protection of direct foreign investments of Singapore nationals in the European Union (and vice versa);

  • the provisions concerning intellectual property rights;

  • the provisions designed to combat anti-competitive activity and to lay down a framework for concentrations, monopolies and subsidies;

  • the provisions concerning sustainable development (the Court finds that the objective of sustainable development now forms an integral part of the common commercial policy of the European Union and that the envisaged agreement is intended to make liberalisation of trade between the European Union and Singapore subject to the condition that the parties comply with their international obligations concerning social protection of workers and environmental protection);

  • the rules relating to exchange of information and to obligations governing notification, verification, cooperation, mediation, transparency and dispute settlement between the parties, unless those rules relate to the field of non-direct foreign investment (see below).

    • Ultimately, it is in respect of only two aspects of the agreement that, according to the court, the European Union is not endowed with exclusive competence, namely the field of nondirect foreign investment (‘portfolio’ investments made without any intention to influence the management and control of an undertaking) and the regime governing dispute settlement between investors and states.

    In order for the European Union to have exclusive competence in the field of non-direct foreign investment, conclusion of the agreement would have to be capable of affecting EU acts or altering their scope. As that is not the case, the court concludes that the European Union does not have exclusive competence. It has, on the other hand, a competence shared with the member states. That conclusion also extends to the rules relating to exchange of information, and to the obligations governing notification, verification, cooperation, mediation, transparency and dispute settlement, as regards non-direct foreign investment (see above).

    The regime governing dispute settlement between investors and states also falls within a competence shared between the European Union and the member states. Such a regime, which removes disputes from the jurisdiction of the courts of the member states, cannot be established without the member states’ consent.

    It follows that the free trade agreement can, as it stands, only be concluded by the European Union and the member states jointly.

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