Europe’s Top Court Says Broad Trade Pacts Need Consent From All EU Countries

Wall Street Journal

The European Union top court on Tuesday curbed the bloc's power to sign off trade pacts without explicit backing from EU members in a decision that poses risks to future deals, including with Britain.

Judges in the Luxembourg-based court said a free-trade agreement between the EU and Singapore concluded in 2014 would have to be ratified by the bloc's members to take effect. That comes as a blow to  the EU's executive arm, the European Commission, which has the sole power to negotiate trade accords on behalf of the bloc. While the commission in reality needs broad support among EU members to ink a trade deal, it had claimed the legal remit to adopt some pacts without formal backing from each state.

"The free-trade agreement with Singapore can, as it stands, be concluded only by the EU and the member states acting together."

While the decision is a setback to the commission and the European Parliament, both of which argued that the EU had broader power vis-à-vis the bloc's members, it is not as expansive as had been expected.

In December, an adviser to the court argued that EU members also share some authority over labor and environmental standards, government procurement and trade in several transport services, and certain aspects of intellectual property rights. The judges, who often follow the advocate general's opinion, didn't follow that advice, however, constraining EU members' remit to dispute settlement and certain foreign investments.

"This is a victory for the commission," said Lode Van Den Hende, an EU and international trade lawyer with Herbert Smith Freehills. "Almost everything is in the exclusive competence of the EU... we're probably talking about 99% to 100%."

Still, the ruling complicates Brussels's push to position itself as the world's free-trade champion at a time the U.S. sends protectionist signals, and could expose its wide-ranging pacts to populist backlash across Europe. The EU is currently pursuing trade deals with Japan and Mexico, among others.

It also casts a shadow over upcoming divorce talks with the U.K., introducing uncertainty over the EU's ability to speedily deliver a future trade deal once Brexit is done. The bloc, however, has signaled that any future EU-U.K. trade agreement would need the backing of all its 27 remaining members.

Having lost its effort to sideline national capitals from signing off on trade accords, Brussels now has to convince as many as 38 national and regional parliaments to ratify the Singapore trade pact.

That sets the scene for another potentially bruising battle, just months after Belgium's Wallonia region--home to less than 1% of the EU's population-- almost derailed a landmark agreement with Canada.

EU governments agreed to transfer broad swaths of their trade authorities to the bloc's executive with the Lisbon Treaty, in force since December 2009. But amid ongoing differences between member states and the commission over the power-sharing agreement, the bloc decided to appeal to the ECJ to clarify Brussels' exact powers.

"This gives us very welcome and much-needed clarity about" the EU's trade powers, European Commissioner for Trade Cecilia Malmstrom said in a post on her official Twitter account.

Tuesday's decision is poised to enshrine a delicate balancing act between national interests and the bloc's overarching policies. Yet it could also present an opportunity for the EU and its members to strike agreements that can sidestep the adoption processes that typically take a year or longer.

"The EU has a stronger and more credible negotiating position if the trade agreements we conclude can be ratified at the European level," said Marietje Schaake, a Dutch member of the European Parliament and its international trade committee.

For the U.K., where some officials were eyeing the Singapore agreement as a model, the ruling dampens hopes of quickly clinching a trade pact after completing Britain's expected departure from the bloc in 2019.

"I don't think it's going to make Brexit negotiations any easier," said Sara Nordin, an international trade counsel at White & Case. "There's going to be an inclination to include as much as possible in the trade agreement because of the market access that both parties need and would aim for."

A U.K. government spokeswoman declined to comment on the decision's potential impact on trade talks.

For now, the bloc will focus on clinching deals with Japan and Mexico by year-end, and selling the Singapore agreement to its members

The Southeast Asian country and the EU's bilateral annual trade and stock investments exceed EUR250 billion.The court decision paves the way for the broad provisional application of the Singapore deal, said Michael Pulch, the EU's envoy to the city-state.