Early gains seen for Singapore in EU court ruling on FTA

Singapore

SINGAPORE can look to scoring early gains from a top European Union court ruling on a free-trade pact that the city-state has with the regional bloc, observers told The Business Times.

This comes even as the ruling by the EU Court of Justice on Tuesday is expected to lengthen the time for the European Union-Singapore Free Trade Agreement (EUSFTA) to come into force.

Deborah Elms, executive director of the Singapore-based consultancy Asian Trade Centre, said: "It's fantastic that we've now unlocked the step forward. The court's decision really affects EU more than Singapore; the battle is now between the member states and the EU."

Tuesday's ruling said that for the EUSFTA to fully come into force, it needs approval from the 38 national and sub-national parliaments of the 28 member states in the regional bloc.

The decision, which cannot be appealed, ends a years-long state of suspension for the FTA's progress.

Back in October 2014, the European Commission (EC), the EU's executive branch, said that it needed legal clarity on the number of layers of approval for the FTA to come into force.

Trade between the EU and Singapore reached S$93.18 billion last year, up from S$90.83 billion in 2015.

Following Tuesday's ruling, a spokesman for Singapore's Ministry of Trade and Industry (MTI) said that it respects the EU's internal processes, and looks forward to the FTA's formal entry-into-force after all member states give their approval.

For now, MTI wants to work with the EU to have the pact "provisionally applied so that businesses can utilise the parts of the agreement that are under the EU's exclusive competence".

"Exclusive competence" refers to those areas in the FTA that the EU can ratify on its own, without the approval of the national parliaments.

Under Tuesday's court ruling, the EU can put into force a wider range of provisions that include (but are not limited to) protection of direct foreign investments, intellectual property rights and sustainable development.

Only two aspects of the EUSFTA require national ratification: One is in the field of non-direct foreign investment; the other is the regime governing dispute settlement between investors and member states.

The split of competencies proposed last December by an EU Court of Justice advocate-general was markedly different - Eleanor Sharpston had pushed for the EU to be required to seek member states' approval in more areas.

Observers said that the split of competencies can work in Singapore's favour, in that, with more exclusive competence granted to the EU, there is a potential for the FTA to come into force sooner, which can benefit Singapore.

For reference, the EU-Korea FTA's provisional application allowed EU exports to South Korea to grow by 55 per cent over four years, going by an EC parliamentary reply.

Public international law specialist Jessica Gladstone, a partner at law firm Clifford Chance, said: "The Court of Justice did acknowledge that a large part of the Singapore FTA does fall under exclusive EU competence.

"If this option is pursued by the European Commission, then the Singapore FTA, by and large, may be entered into force sooner rather than later."

But even as Singapore can hope for early gains with Tuesday's ruling, observers note that the EU may experience more issues in the future with the ruling.

A recent deal between the EU and Canada was almost killed by opposition from one sub-national parliament. It now will take effect provisionally in the coming weeks.

Observers also note that Tuesday's ruling covers an FTA that is considered "new generation" - one that goes beyond just a simple agreement on trade in goods and services.

Milagros Miranda Rojas, a special adviser on international trade law at Norton Rose Fulbright in London, said that the EU, already in the process of negotiating similar pacts with other economies such as Japan and Mexico, will be concerned by Tuesday's ruling.

For now, Singaporean businesses said that the enlarged exclusive competence under the EU's purview in Tuesday's ruling can give them some relief.

But having it subjected to national ratification still worries them.

Said Ho Meng Kit, chief executive officer of Singapore Business Federation: "The positive thing is that it's not as severe as we thought.

"But we still wish that it would not need to go through the national parliaments because we've completed the negotiations.