Brexit: ECJ Opinion on EU external trade competence

On 16 May 2017, the Court of Justice of the European Union ("CJEU"), in a rare full court composition, delivered its Opinion in Case 2/15 on the extent of the Union’s exclusive competence to negotiate free trade agreements.

The case relates to the proposed EU/Singapore free trade agreement, one of the first “new generation” bilateral free trade agreements containing, in addition to classical provisions on the reduction of customs duties and of non-tariff barriers in the field of trade in goods and services, provisions on various matters related to trade, such as intellectual property protection, investment, public procurement, competition and sustainable development. In accordance with a procedure set out in Article 218(11) of the Treaty on European Union ("TFEU"), the Commission submitted a request to the CJEU for an opinion to determine whether the EU has exclusive competence enabling it to sign and conclude the envisaged agreement by itself and pursuant to a qualified majority vote in the Council (Article 207(4) TFEU), excluding Member States’ veto power.

The analysis of the CJEU is significant for the procedure applicable to the free trade agreement that the UK is hoping to negotiate with the EU in the Brexit context.

On the basis of a detailed analysis of the scope of the EU exclusive competence in the area of the common commercial policy (Article 3(1)(e) TFEU), the CJEU asserts that the EU cannot conclude the agreement with Singapore by itself because certain parts of the agreement fall within a competence shared between the EU and the Member States. However, it ruled that the extent of the EU’s exclusive competence is broader than was advised in Advocate General Sharpston's Opinion of 21 December 2016, in which several areas were identified for which the EU did not have exclusive competence.

According to the CJEU, the only areas in the EU/Singapore free trade agreement falling within shared competence with Member States are the fields of non-direct foreign trade investment (portfolio investments made without any intention to influence the management and control of an undertaking) as well as the regime governing dispute settlement between investors and Member States.

Any future free trade agreement entered into by the EU covering these areas of shared competence will have to be ratified by Member States (including by regional parliaments where relevant). This will also be the case for a future free trade agreement between the EU and the UK, expected to be even broader than the EU/Singapore trade agreement, which may cause further delays in the establishment of that future relationship. However, given the small number of areas that the CJEU has excluded from exclusive EU competence, such an agreement may be able to enter into force on the basis of provisional application even without ratification by all Member States since such ratification would only be required to give effect to areas of shared competence, to the extent that they form part of such a future agreement.