Member state ratification: what does the ECJ ruling mean for a future UK-EU Free Trade Agreement?

25 May 2017

Last week, the European Court of Justice (ECJ) ruled that the EU cannot conclude its Free Trade Agreement (FTA) with Singapore on its own as it contains elements that fall under member state responsibility or ‘competence’.  The specifics of the ruling are complex, but they provide useful points of clarification, which may help the UK and EU progress a deal smoothly.   Our trade adviser, Phil Brown looks at the technical details of the ruling and what they might mean for a future UK and EU.

The ECJ ruling confirms that any UK-EU FTA agreed will need to be ratified by national parliaments, on top of being agreed by the EU and the European Parliament (EP).  The ECJ ruling specifically highlights two provisions in the Singapore deal that the Court judged to be ‘shared competences’. These provisions are portfolio investment and dispute settlement for investments.  This means that the EU as a body does not have full control or ‘exclusive competence’ over these areas, making it a ‘mixed agreement’ requiring individual member state ratification.

But what does it mean for the UK and any future FTA that we strike with the EU as we exit? And what are the implications for how we might go about structuring the deal?

Firstly, the Singapore ruling has not affected the option of negotiating a deep and comprehensive ‘mixed agreement’ and then provisionally applying all elements that are exclusive EU competences.  This would mean that most of the UK-EU FTA would enter into force straightaway, with those areas of shared competence delayed until ratification was completed.  While this is what happened with the EU-South Korea FTA, the EU-Canada CETA experience demonstrates the risk of this approach from a UK perspective.  In this case, concerns raised by regional parliament of Wallonia meant that the Belgian government delayed signing the deal and that last minute concessions had to be negotiated.  The CETA is now being provisionally implemented and it is not clear when - if ever - provisional application would expire. Good news for the CETA.  But a situation the UK and EU will want to avoid.   [SD1]

Secondly, the ruling has provided clarity about how a future UK-EU deal could be structured to exclude areas of ‘shared competence’. This would mean that the FTA could be implemented in full as soon as agreed by the EU (by qualified majority voting as long as certain provisions that require unanimity were avoided) and the EP.  In fact, the ECJ found member states share competence on far fewer aspects of trade policy than thought previously, with transport services, non-commercial IP and other areas ruled to be exclusive EU competences.  This could make it easier to agree a fairly comprehensive FTA directly between the EU and the UK government. That said, given the political and economic significance of the UK-EU deal, even if not legally necessary, the EU authorities may well consider it prudent to put it to member states for ratification.

So the ECJ’s ruling does not eliminate the risk that individual member states may hold up or block a UK-EU FTA for their own reasons, either because it's a ‘mixed agreement’ requiring member state ratification, or because the EU simply deems it too important not to put it out to member states for ratification.  But it certainly does not increase the risks to a deal.  

So as we look ahead to 2019 and beyond, the ECJ ruling offers timely clarity about EU and member state competences that can inform both the content and approach to agreeing an ambitious UK-EU FTA.

 

Phil Brown | Trade Adviser
Profile | +44 (0) 7432 340 942

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