Author: Christofer Fjellner
Posted: 10/5/17
European trade policy has been in limbo for a couple of years. The big question everyone has been asking is whether modern free trade agreements can be ratified by the European Union at all. If a modern agreement must be ratified by national parliaments, no one knows if it will finally be ratified at all.
On Tuesday (16 May), the European Court of Justice (ECJ) ruled that the proposed EU-Singapore free trade agreement must indeed be ratified by all national parliaments but it clearly draws the line of what is exclusive EU competence and what falls to be ratified by member states.
It might sound like bad news but it actually can lead to a good way forward. So far, all major EU trade agreements, such as the ones with Canada and Korea, have been mixed. Now we know the lay of the land.
There will be hurdles ahead but with a sense of responsibility among member states, we can make sure that future agreements are ratified swiftly, maybe even swifter than before. That is, if they allow separate investment agreements that cover areas where there is indeed mixed competence.
In essence, the court says that the EU has exclusive competence to negotiate on trade in services, intellectual property rights, provisions on labour and environmental standards and competition policy – all areas member states have previously been hesitant to leave to EU trade negotiators.
The only areas which fall under so-called mixed competence are portfolio investments and the settlement of disputes between investors and states, ISDS. It is a good and workable result.
Should the court have followed the opinion from its advocate-general which said substantial parts such as trade and sustainable development and transport services fall within mixed competence, European trade policy would have been in for a really rough ride.
What is needed now is political action from member states to make sure that this fall’s debacle when the Walloon government tried to block CETA will not happen again.
If member states take responsibility, the natural political decision to take now is to separate the vast majority of free trade agreements into EU-only agreements.
Agreements on investment protection and investments without the management of an undertaking, so called portfolio investments, can be negotiated in separate investment agreements, as traditional bilateral investment treaties.
Whether those agreements are to cover access for foreign direct investments or if provisions on that should be left to EU-only agreements must be studied closely. This is the only sensible option.
If we continue with substantial mixed agreements, we will always run the risk that a small national parliament kills a FTA altogether a couple of years after provisional application, a fate that is not improbable for CETA.
But what will it mean in practical terms? For Theresa May, the ruling should come as somewhat of a relief. After Brexit, the UK will be able to negotiate an ambitious free-trade agreement with the EU without having risking it being stopped by populists at some corner in Europe.
Portfolio investments and ISDS will have to negotiated separately but not having an agreement in place for these areas won’t affect the daily flow of business as much as the risk of no agreement would have on trade in goods and services.
When and if negotiations with the United States start on TTIP again this will be a harder nut to crack. During the TTIP negotiations, the US pushed for the inclusion of investment protection to be part of the agreement.
If the EU is to negotiate investment protection separately, it is probable we will have difficulties in getting other concessions in return on areas such as procurement and water transport.
However, this is a minor issue when looking to EU-US trade relations. The current administration’s unpredictability on trade policy and its blind-eyed focus on bilateral trade deficits that goes against all economic rationale will surely be more difficult.
A trickier issue will be China. The critique against Chinese state-sponsored FDI in Europe is growing stronger and negotiations for an investment agreement are slow. It is necessary to level the playing field through an ambitious agreement but if China recognises it is hard for the EU take make serious commitments in negotiations, achieving an agreement will be very difficult.
What is needed now is political action. Member states must accept what the law says is EU exclusive competence and let the EU negotiate EU-exclusive agreements.
The Commission must come forward with a roadmap to ensure that future FTAs will not go down the same path as CETA did with last minute negotiations between Canada and the region of Wallonia.
With the law settled, trust in EU trade policy will not only be restored but also strengthened through concrete action from the Commission and member states.
We can actually show that Europe can negotiate and quickly conclude ambitious free trade agreements. That way, the EU would stand up for globalisation and free trade in times of rising protectionism.