Free trade agreement ruling could scupper quick Brexit deal, or not

The European Union does not have jurisdiction to conclude a comprehensive free trade agreement without individual EU member states also giving their approval, the Court of Justice of the European Union has ruled in a decision that has been construed as possibly scuppering the chances of a quick post-Brexit deal.

In a case referred to the Luxembourg court by the European Commission, a panel of 15 EU judges has ruled that a 2013 free trade agreement with Singapore including investment provisions could not come into effect until all domestic lawmakers gave it their backing.

'The free trade agreement with Singapore cannot, in its current form, be concluded by the EU alone, because some of the provisions envisaged fall within competences shared between the EU and the member states,' the court said in Opinion 2/15. As it stands, the court added, the agreement can be concluded 'only by the EU and the member states acting together'.

With a post-Brexit relationship between the UK and the EU looking more like a Free Trade Agreement than a European Economic Area-type agreement, observers initially warned that the ruling could give all national lawmakers, including regional parliaments, a right of veto over the deal. All will depend on whether any EU-UK trade agreement would include matters not falling within the sole jurisdiction of the EU, which would prevent the European Commission negotiating and concluding the agreement on behalf of the EU.

Steve Peers, professor of EU and human rights law at the University of Essex, said the judgment significantly increased the EU's ability to sign trade agreements without national ratification, including a post-Brexit one, provided such agreements didn't cover investment.

'If the UK after Brexit sought to sign a similar deal to Singapore's but without investment clauses, then it could avoid such a potential obstacle. But the UK will likely seek a deal that contains further trade liberalisation, so it's possible that fresh legal disputes may arise in that case,' he said.

Dutch Democrat MEP Marietje Schaake said the ruling made clear most of the FTA fell within the EU's exclusive competence, and that the question now was a political one: whether to negotiate agreements that can be quickly ratified by the EU alone while negotiating on matters that fell within the shared competence in a separate track.

The commission referred the question of the Singapore FTA to the CJEU in 2015 after differences of opinion emerged in its trade committee about whether the EU had competence to conclude the FTA on its own without the involvement of the member states.

At the time David Cameron had already made clear his government would put the question of Britain's EU membership to a referendum once he had negotiated new terms with Brussels. The referendum was announced in February last year and held on 23 June, with Brexit proponents asserting Britain would be able to swiftly negotiate trade agreements with third countries including the EU itself.

By requiring that member states should be parties to the Singapore FTA alongside the commission, the court's decision will make it more difficult for the EU to conclude similar wide-ranging FTAs with other countries. The hiccup encountered during the ratification of the Comprehensive Economic and Trade Agreement, the EU's FTA with Canada, illustrates the perilous prospects such treaties can face.

CETA had taken seven years to negotiate and was nearly scuppered when the parliament of Wallonia, a Belgian region, opposed its veto. The matter was resolved politically.

A similar wide-ranging FTA with Britain '“ covering not just free movement of goods and services but also certain aspects of trade such as intellectual property protection, direct investment, and public procurement '“ could now take years of negotiation. Another sticking point could be the jurisdiction of the CJEU over disagreements arising out of the FTA. This is the default position in the EU's FTA, and any derogation would likely be a shared competence matter, bringing back the prospect of a Wallonia situation.

Much as the European Commission, the European Parliament, and most governments involved in the Brexit negotiations are hoping for a reasonably speedy process, the lack of willingness on the part of some to give their agreement to a deal could still see it dead in the water.

Jean-Yves Gilg is editor-in-chief at Solicitors Journal

@jeanyvesgilg

jean-yves.gilg@solicitorsjournal.co.uk