The Court of Justice of the European Union (“CJEU“) ruled today that provisions of the EU-Singapore trade agreement relating to non-direct foreign investment and those relating to dispute settlement between investors and States do not fall within the exclusive competence of the EU, so that the agreement cannot, as it stands, be concluded without the ratification of the Member States.
As the CJEU notes, the EU-Singapore trade agreement is one of the “new generation” of bilateral free trade agreements, because in addition to typical provisions on cutting duties and non-tariff barriers, the deal touched on intellectual property protection, investment and public procurement.
The European Commission submitted a request to the CJEU for an opinion as to whether the EU has exclusive competence enabling it to sign the envisaged agreement without Member State participation. The EU has exclusive competence for matters falling under the common commercial policy (Article 3(1)(e) TFEU). It is settled case-law that where an agreement concluded by the EU will have implications for trade with one or more third states, that fact alone is not enough for the agreement to be classified as falling within the common commercial policy.
An EU trade act falls within the common commercial policy if it is essentially intended to promote, facilitate or govern such trade and has direct and immediate effects on it.
The Court held that the free trade agreement cannot be concluded by the EU alone, because some of the provisions envisaged fall within competences shared between the EU and the Member States. The EU-Singapore trade agreement should therefore be concluded by the EU and Member States acting together.
Specifically, the CJEU found (link to full text) that the EU is not vested with exclusive competence in two domains:
- Non-direct foreign investment (‘portfolio’ investments made without any intention to influence the management and control of an undertaking)
- Dispute settlement between investors and States
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