EU court ruling on Singapore trade deal could help UK negotiations ahead of Brexit, says Institute of Directors

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The UK voted to leave the European Union on 23 June 2016 (Source: Getty)

UK business leaders have welcomed a European court ruling which could pave the way for slightly smoother EU trade talks ahead of Brexit.

The European Court of Justice today ruled that an EU trade deal with Singapore will need to be ratified by all 38 national and regional parliaments in the union.

However, the ECJ also this morning said the EU has “exclusive competence” to ratify a trade deal in a number of areas, such as transport, labour and environmental standards.

Read more: More Wallooney Tunes? What EU court ruling on Singapore deal means for UK

The court ruled that only two areas of the trade deal need approval from the 38 parliaments: non-direct foreign investment and the governing of dispute settlement between investors and states. A preliminary ruling from the advocate general went further last December, suggesting more areas should be subject to shared competence.

The ruling was being closely watched ahead of Brexit negotiations. A ruling giving the EU exclusive competence for the deal would have paved the way for a smoother UK deal, eliminating the risk of a repeat of the near-collapse of the EU-Canada trade deal, which was disrupted by Belgium’s Walloon parliament.

However, the ECJ was not expected to rule this way, instead backing the view of the advocate general and maintaining the status quo.

Therefore, the Institute of Directors has found some positives in today’s judgement.

“This ruling will likely make it easier for the EU to conclude trade deals without fear of as many hold-ups from national and sub-national legislatures,” said Allie Renison, head of EU and trade policy at the IoD.

“While the court confirmed that member states do have a role over aspects of investment, it parted with the earlier advocate general’s opinion on a raft of important policy areas such as transport, labour and environmental standards, which it said are reserved for the EU executive when negotiating free trade agreements.

Read more: The EU will "for sure" sign free trade deal with the UK

“This may mean a separation between trade and investment in future agreements. How this affects Brexit negotiations will depend on whether the final trade agreement includes investment provisions or not, although neither the UK or EU has expressed much interest in this to date.”

Norton Rose Fulbright’s Milagros Miranda Rojas said she expects the UK-EU deal to be “broad in scope”, and therefore cover areas under the remit of the EU alone and the member states.

“This reality – confirmed by the court – of a two-track approval process will certainly slow the process of entry into force of an EU-UK trade agreement, and this overlooks the time that will need to be committed to negotiating process itself,” she said.

“An interesting point not addressed by the ruling but mentioned in the opinion of the advocate general in the case, is that in theory it might be possible to split the agreement into two parts, one covering the issues that fall squarely within the EU’s competencies – such as tariffs and customs measures – and the other covering areas that also fall within member states’ competencies.”

Aarti Shankar, a policy analyst at Open Europe, told City A.M. “I think this provides quite a lot more clarity. It appears that if the UK deal were to avoid any provisions in investment and on an investor-state dispute settlement mechanism, there is the possibility it could be concluded as EU-only.”

She added: “Equally, of course, this only sets the legal precedent. The question of a how a trade deal is concluded is equally a political question.”

Ross Denton, a trade partner at law firm Baker McKenzie, said:

The judgement was largely as expected, reining in the power of the commission to conclude comprehensive trade agreements without the approval of national parliaments.

This confirms that Brexit will be a complex negotiation and have at the end of it a highly risky signing off procedure. It points out the need for the UK to avoid dealing exclusively with the commission during the Brexit negotiations.

It is in the UK's interests to keep all national capitals informed of the discussion so as to avoid any 'surprises' during the sign-off procedure.

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