13 January 2017

Erika Szyszczak is a Professor of Law at the University of Sussex, Barrister and ADR Mediator at Littleton Chambers, Temple and a Fellow of the UKTPO.

EU trade policy has been cast into shadow by the sharp focus on how the UK will conduct its future trade policy. But it will be in the interests of the EU and the UK to negotiate their future trading relationship as quickly and smoothly as possible. An issue for the EU will be the question of whether it will have exclusive competence to negotiate and ratify a trade deal with the UK. Or will it be forced to acknowledge that any future agreement will be a mixed agreement requiring, and risking, ratification by all 27 Member States?

Two events at the end of 2016 have shed light on the legal and political issues facing the EU in negotiating a post-Brexit world.

The first was the use of a non-EU instrument to remedy the disquiet of Dutch voters blocking the ratification of the EU-Ukraine Association Agreement.

The second was an advisory Opinion by Advocate General Sharpston in Opinion 2/15, on the scope of EU competence to negotiate and conclude a new free trade agreement with Singapore.

Competence to Conduct and Ratify Trade Deals: the Canada and Ukraine Problem

‘Who has the competence to negotiate and conclude trade agreements in the EU has been a source of contention.’

Where the EU has exclusive competence to negotiate, conclude and ratify a trade agreement the process ought to be smoother than the situation where an agreement is a mixed agreement, involving the Member States. For example, in October 2016 the Belgian region of Wallonia temporarily blocked the signing of the Canada-EU trade agreement (CETA) which had taken over a decade to negotiate. The agreement was signed but it still requires ratification by the European Parliament and all of the national parliaments of the Member States. Similarly, in April 2016 the Netherlands held a non-binding referendum on whether the government should approve the EU-Ukraine Association Agreement. The voting turnout was low – just 32.8% – but a majority (61.1%) voted against the Dutch government ratifying the agreement. The main reasons for a “no” vote were the perceived corruption in Ukraine and a “fear of EU membership”.

‘As with the response to the UK referendum, which was also not legally binding, the Dutch government decided to acknowledge the rejection of the Ukraine agreement and to take the concerns of a minority of the population seriously.’

This resulted in a difficult period of negotiation at EU level, culminating in a decision within the framework of the Heads of State or Government of the 28 Member States of the European Union, meeting within the Council on 15 December 2016. The decision does not alter the Ukraine Agreement; it is regarded as a document in which the Heads of State or Government of the EU set out an agreed interpretation of the EU-Ukraine Agreement.

This is an example of the pragmatism and flexibility adopted by the EU to overcome political obstacles. The European Council’s Legal Counsel regards the decision as an international agreement. But the Court of Justice of the European Union (CJEU) has held that such rare decisions are an act of the Council, bringing it within EU instruments.

Future EU Trade Policy: A Singapore Precedent?

Article 207 of the Treaty on the Functioning of the European Union (TFEU) extended the scope of the EU common commercial policy to cover trade in services, commercial aspects of intellectual property and foreign direct investment. Article 207 TFEU states that normally the Council will vote by a qualified majority, thus knocking out the possibility of one Member State exercising a veto over any trade deal. In Opinion 2/15 , under proceedings utilising Article 218(11) TFEU, the CJEU, sitting as a Full Court, will have the opportunity to discuss whether the proposed free trade agreement between the EU and Singapore falls within the exclusive competence of the EU, allowing the Commission to conduct and the Council to ratifyratify the agreement, or whether its content allows the Member States to play a role in negotiating and ratifying a mixed agreement. The EU-Singapore Free Trade Agreement covers trade in goods, services, intellectual property and investment. While case law has already decided that the first three areas would fall within the EU exclusive competence, the meaning of Foreign Direct Investment – brought within EU exclusive competence by Article 207 TFEU – may require some legal clarification.

In a long, analytical and detailed Opinion AG Sharpston has advised the CJEU that – whereas aspects of the FTA with Singapore fall within the EU exclusive competence – other areas, such as transport, government procurement relating to transport and services, intellectual property, labour and environmental policy, and issues relating to disputes and transparency, fall within the shared competence of the EU and the Member States. A crucial issue was the analysis of investment. The AG argued that the common commercial policy of the EU covered investor protection, but other forms of investment, such as portfolio investment, was an area of shared competence between the EU and the Member States.

Implications for the UK-EU post-Brexit Deal

This blog has focused upon the political and legal pressures facing the EU in negotiating future trade deals.

‘The settlement of the Ukraine Association Agreement by political and diplomatic means shows that there are EU processes and tools which can be utilised to break a national deadlock to ratifying future trade deals, especially where the political stakes are high.’

The Ukraine settlement reveals that even where a mixed agreement is used, there are ways of overcoming national opposition. But the Dutch settlement was in response to opposition from a minority of the EU electorate. If opposition to a UK deal was at a majoritarian national level the EU would have to push hard for consensus.

The AG Opinion in Opinion  2/15 is advisory. But it is of some concern to the manner in which the EU-UK post-Brexit trade deal is negotiated. A mixed agreement is the most likely route for the EU to take, since it is unlikely that the UK would want to negotiate a very narrow FTA just on goods and services. The Opinion of the AG expressly acknowledges that this may be a cumbersome and complex process, with adverse effects on future trade relationships. An interesting point, not to miss, however, is that she argues that where a mixed agreement relates to matters within the exclusive competence of the EU, a Member State would be in breach of its Treaty obligations if it were to reject the agreement on grounds relating to matters where the EU has exclusive competence (para 417).

Finally, as a mediator, I cannot resist the typos in para 123 of the Annex, where the Mediation Procedure becomes the “meditation” procedure. Time to reflect for all?

 

Disclaimer:

The opinions expressed in this blog are those of the author alone and do not necessarily represent the opinions of the University of Sussex or UK Trade Policy Observatory. 

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