On 16 May 2017, the Court of Justice (CJEU) delivered the long awaited Opinion 2/15 concerning the EU-Singapore free trade agreement (EUSFTA). The Opinion answers the European Commission’s question on where the competence to conclude this FTA lies, with the EU on its own, or along with its Member States. In her Master Thesis for the Masters in Globalisation and Law, Despoina Loupi argues that, despite appearances, the Opinion could be good news for a potential EU trade relationship with the UK, as even though it finds that the EUSFTA has to be concluded as a ‘mixed’ agreement, the Opinion gives clear guidelines on how to design ‘EU-only’ agreements.

In Opinion 2/15, the CJEU finally clarified the division of competences between the EU and its Member States in the area of common commercial policy (CCP) and came to the rather historic conclusion that the EUSFTA provisions on labour rights and environmental protection fall under the EU's exclusive competence under the CCP.

By contrast, this ruling means that the Commission still needs each Member State to ratify every FTA that involves portfolio investment and ISDS procedures. This may not only mean that FTAs have to be negotiated with the soon-to-be 27 Member States, but instead with the 38 national and regional parliaments that exist across the EU.

Thus, despite providing much needed clarity as to the scope of the CCP in light of ‘new generation’ EU trade agreements, the Opinion appears to add new legal questions. What does the Opinion mean for the future of the EU investment policy and especially the Commission’s goals to ‘reform’ the current bilateral investment treaty (BIT) dispute settlement system by means of a multilateral European Investment Court? Is also the goal of the Commission of a ‘comprehensive trade policy’ that involves the inclusion of investment protection in EU free trade agreements (FTAs) going to be abandoned?

One thing is confirmed: broad ‘EU-only’ trade agreements can constitute the new normal of EU external trade action, only if such agreements exclude portfolio investment and investor-state dispute settlement provisions from their scope. Such components should therefore be concluded separately as mixed agreements if the EU wishes not to ‘pollute’ a purely ‘EU-only’ agreement with ‘mixed’ provisions.

The above delimitation of competences affects the conclusion of a possible UK-EU FTA. It is important to note that any FTA negotiations will start only after the UK has finally left the EU and gains the status of a ‘third state’.

A UK-EU FTA may not be the first or even the second best option (the best option would potentially be a ‘soft Brexit’, with the UK remaining in the Single Market, by joining the EFTA states or alternatively the UK remaining in the customs union), but it is necessary. Following a more pragmatic approach, the conclusion of an EU-UK FTA is still a vastly better option than reversion to trade with the EU on a ‘WTO-only’ basis. Such reversion would mean that the UK and EU would be obliged to apply to each other the tariffs and other trade restrictions they apply to the rest of the world under the most favoured nation principle.

After Opinion 2/15, the Commission would have a very solid argument against demands from the Member States to participate in the conclusion and ratification of FTAs, and would therefore have the chance to conclude a FTA with the UK containing wide-ranging trade and trade-related provisions, as these would fall under exclusive EU competence under CCP. Conversely, the Commission must also accept that it is time to separate the investment chapters from a possible FTA with the UK and potentially put investment protection under a BIT as a second agreement following the ‘EU only’ FTA. The growing trend to make use of mixed agreements under a cumbersome and politicized national ratification process can thus be put to a stop after Opinion 2/15.

The UK, on its side, must accept that (at least in an indirect way) the CJEU will play a role as a dispute resolution body if an agreement is to be concluded and potentially also accept that freedom of movement cannot be completely opted-out of if it wishes a deep and comprehensive FTA to be concluded. Otherwise, insisting on adding ISDS clauses could ‘drag’ the FTA through national parliament ratification and potentially make it subject to the veto power of some Member States, or possibly prevent an agreement from materialising at all.

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 Master thesis by Despoina Loupi
 Published on Law Blogs Maastricht