EU-S'pore FTA faces potential legal hurdle that may shape Brexit deal
Court ruling on how many layers of ratification needed would impact EU's future FTA with UK and others
Singapore
A POSSIBLE legal hurdle has surfaced in Singapore's proposed free-trade agreement (FTA) with the European Union. Observers say this will likely result in the pact - now in its eighth year of formulation - getting stuck in limbo in the near-term.
And with the United Kingdom saying that it will negotiate an FTA for its exit from the EU, or "Brexit", observers told The Business Times that the possible obstacle in the EU-Singapore FTA may shape future trade relations between the UK and EU.
Noting the current political climate against globalisation, Deborah Elms, executive director of the Singapore-based Asian Trade Centre said: "It's kind of a rough time for the EU-Singapore FTA, really.
"Should the EU push to ratify it as soon as possible, or should it let it stay frozen for a while to let this wave of anti-globalisation ride through?"
At the heart of the issue is a top EU Court of Justice official's opinion on how many layers of approval must the EU-Singapore FTA get before coming into force.
EU Advocate General Eleanor Sharpston said in late December that the FTA "can only be concluded by the EU and the member states acting jointly", instead of the EU ratifying the deal on its own. The latter option essentially fast-tracks the ratification process.
The joint-approval method is because she views the FTA as a "mixed agreement". This means that some matters covered by this FTA are in areas where the EU is not able to act on behalf of its 28 member states.
Some of the matters include, for example: investments other than foreign direct investments; non-commercial aspects of intellectual property rights; labour and environmental standards that fall within the scope of social or environmental policy.
The Advocate General noted that difficulties may arise from a ratification process involving all member states alongside the EU, but that "cannot affect the question who has competence to conclude it."
The Court's final ruling will only be out later this year.
Negotiations for the FTA started in 2009. Its ratification is expected to boost trade and investment flows between the two partners even further.
The EU is Singapore's third-largest trading partner at 10 per cent of total trade. It is also Singapore's largest investor, accounting for almost a quarter of the stock of foreign direct investment, said Singapore's Minister for Industry S Iswaran last year.
In return, Singapore is the EU's largest Asean trading partner, accounting for a third of its trade with Asean.
There have been instances where the EU sought approval of the close to 40 national and sub-national legislatures of its member states for FTAs.
Most recently, the European Commission in Brussels, which is the EU's executive arm, decided that the Comprehensive Economic and Trade Agreement (CETA) signed with Canada is a mixed agreement, and needs member states' approval.
These increased layers of approvals come at a time when FTAs "are much more complex, they go beyond trade in goods and services," said ANZ economist Ng Weiwen.
But Brussels decided to take a route different from what it had for the Canadian pact; it needed legal clarity for the EU-Singapore deal.
"It has become increasingly important that the precise scope of the EU's exclusive competence is clarified," said public international law expert Jessica Gladstone, who is a partner at law firm Clifford Chance.
Observers pointed out that in most cases, the judges follow the advocate general's opinion.
And when that happens, anti-globalisation sentiment in Europe is expected to prolong the FTA's ratification process, said observers.
Added to the mix is that some member states are expected to hold elections or referenda soon.
This presents Brussels with a dilemma on whether it should prod member states to ratify the FTA as soon as possible, or put it on the backburner.
"If you push ahead, with all the elections that are ongoing, the FTA might just open up a Pandora's box of anti-globalisation sentiment," said Dr Elms. "My guess is that they will just try to bury it for a while longer."
"There's nothing much Singapore can do" if that's the case, said Song Seng Wun, CIMB economist.
Already, observers can see the potential impact the Court's opinion on the EU-Singapore FTA can have on European politics.
On Jan 17, British Prime Minister Theresa May said that the UK will negotiate an FTA with the EU for Brexit.
Scott Wightman, the British High Commissioner to Singapore had also said that the UK is determined to push ahead with the FTA before the country leaves the EU.
When asked if the UK would seek to insert a clause in the EU-Singapore FTA to let it remain a beneficiary even after Brexit, Mr Wightman said this is a "technical detail" that has to be framed within the context of the Brexit negotiations.
The Court's opinion can thus reinforce "the expectation that any UK-EU trade deal is likely to be a mixed agreement," said Ms Gladstone.
Given the uncertainties surrounding the EU-Singapore FTA's future, observers still remain optimistic about EU-Singapore trade ties.
"If it falls through, it will just erase the upwards potential for EU-Singapore trade ties. Businesses still have to move on and continue to trade," said Ho Meng Kit, chief executive officer of Singapore Business Federation.
However, its passage may improve EU's trade relations with the rest of Asean, and vice versa.
Singapore's Ministry of Trade and Industry states on its website that the FTA is a "pathfinder for the EU's FTAs with other Asean member states." The EU is currently negotiating FTAs with Vietnam and Indonesia.
"If the EU-Singapore deal gets a setback, Vietnamese and Indonesian officials may be less enthusiastic about pushing ahead for similar deals with the EU," said Dr Elms.
READ MORE: Walls may come up, but keep building doors and bridges
