The Strategist

EU-Singapore trade deal will determine Brexit negotiations

05/18/2017 - 14:41

The European Court's decision on a trade agreement between the EU and Singapore can either facilitate or significantly complicate arranging an agreement on free trade between the UK and the EU after Brexit. The Court ruled that the treaty with Singapore in its current form is subject to ratification by all 38 parliaments of 28 member countries, which would delay its conclusion for years. At the same time, the list of exclusive EU competencies included issues related to access to markets for goods and services, including transport, direct investment and protection of intellectual property rights.

The European Commission submitted the issue of EU powers in the field of concluding trade agreements to the European Court of Justice. The European officials insisted that the supranational structures of the Union should have sufficient powers to conclude such agreements without interference of national and regional parliaments. However, the Court decided that issues of indirect foreign investment (portfolio investments not aimed at management or control over enterprises), as well as issues of regulation of investors' disputes with the authorities, should be referred to the joint jurisdiction of the EU and national states. At the same time, the court relegated to the EU's jurisdiction all issues related to foreign direct investment, protection of intellectual property rights, environmental standards and access to markets for goods and services, including transportation services. The current list is much broader compared to the initial definition given by the Court’s Prosecutor General in December 2016 year.

Analysts note that the current court decision creates an important precedent for determining the upcoming free trade agreement between the UK and the EU, which British Prime Minister Teresa May would like to see "ambitious and comprehensive". Local parliaments have the right to veto this initiative, which may not only delay the process of the agreement’s ratification, but also put it on the brink of collapse, as it happened with the trade agreement between the EU and Canada (CETA), almost blocked by Belgium Wallonia. Thus, the British government will have to choose between two evils: either narrow the boundaries of the "all-embracing" agreement for its ratification by the EU's powers and to receive approval of a simple majority in the European Parliament, or the risk of delaying the process for years.

The UK itself took the news with moderate optimism. As the representative of the Institute of Directors (one of the largest business organizations of the country) noted, the Court’s decision will facilitate conclusion of trade agreements for European officials who can no longer be afraid of numerous obstacles on the part of national and local authorities. London believes that the most important point of the future agreement are preservation of access to the European market for financial, transport and telecommunications services (in the EU’s competence). Given that no one has raised the issue of investments yet, it is very likely that the new the British government may decide to follow the path of least resistance.

Under the alternative scenario, the agreement can be divided into two parts. The main part will enter into force once the governments of the EU and the European Parliament approve it, and the remaining articles will await ratification by the national parliaments. Some analysts also note that, unlike traditional trade agreements, the UK's task will not be further integration into a single market, but, on the contrary, minimizing damage from breaking existing trade ties. If the agreement does not let new major players in the local market, then it is unlikely to meet serious opposition from local parliaments, experts believe. At the same time, specific content of the agreement and inclusion or exclusion of certain articles from the paper may become an additional instrument of Brussels' pressure on London during the negotiations. At the end of April, Chairman of the European Council, Donald Tusk, warned the UK that the reconciliation process would not be easy. According to him, the trade agreement can only be concluded in absence of unfair competitive advantages in the field of taxes, social and environmental measures and state regulation.

The government of Theresa May is in no hurry to comment on the Court’s decision. The official representative of the cabinet said that the decision was "seen", but refused to speak about its consequences for the future trade agreement with the EU.