Why the EU’s Singapore ruling does not lead to a smoother Brexit road for Britain

The UK’s future trade deals will be subject to EU member state approval. shutterstock.com

The UK’s vote for Brexit was all about taking back control. Indeed, when the UK leaves the EU, control over a variety of policy areas is likely to change hands. The problem is that it will not necessarily be into the UK government’s hands. A recent decision by the European Court of Justice (ECJ) regarding a key EU trade deal with Singapore shows yet again how control over post-Brexit trade might be subject to the whims of the EU’s member states and their regional governments.

Europe’s top court ruled that all member states and their regional parliaments must sign off on the trade deal being negotiated by the EU and Singapore. This has direct implications for Brexit as it could affect the path for acceptance of any future agreement between the UK and the EU post-Brexit. It dashes hopes that the EU institutions would have the final say in negotiating trade deals.

If the EU could conclude free trade agreements on its own, with ratification handled by EU institutions only, then any negotiated agreement would go through predictably and quickly. If, on the other hand, member states, or even member state regional authorities, are required to approve agreements, then the whole process of negotiating new agreements will be prolonged, and possibly held hostage by national and sub-national political interests.

This happened in 2016 when the small Belgian province of Wallonia delayed the ratification of the Canada-EU trade agreement. The recent ECJ ruling was much anticipated, as a precedent for future trade deals.

The EU’s big trade deals with Canada and the US have been unpopular. EPA/Julien Warnand

A post-Brexit deal with the UK requiring ratification by the EU Commission, EU parliament, 27 national parliaments and endless regional entities (depending on the details of 27 different national constitutions) would take quite a while, with significant consequences for cross-channel trade.

Details, details …

In the recent Singapore case, the ECJ ruled that the EU can have exclusive power under the Treaty of Lisbon to ratify a number of trade agreements (albeit not the one with Singapore). As a result the Wallonia incident should be seen as an unlikely event, rather than the norm. But it still does not bode well for Britain.

The court held that only those free trade agreements dealing with standard trade issues are the exclusive domain of EU institutions. Those that involve non-direct foreign investment and a system on dispute settlement between investors and governments (known as ISDS), however, need the approval of member states.

Some commentators have welcomed the decision. They see it as an incentive, and even precursor, for the EU to drop ISDS elements from its trade deals altogether. The so-called Investor State Dispute Settlement element of trade deals allows companies to sue national governments if they pass laws that affect their bottom lines. It is considered by many as unnecessary encroachment on national sovereignty. In fact, it was resistance to ISDS that was the primary reason for Wallonian objection to the Canada trade deal, and it has been the number one reason campaigners have raged against TTIP, the US-EU trade treaty under negotiation.

Taking back control

But it is not possible to see the Singapore decision as a win-win, easing procedural steps to a Brexit deal, while at the same time, eliminating distasteful ISDS from EU trade agreements. This is because the EU will probably insist on them in any future UK-EU deal. It is all to do with control.

The EU is upfront about its desire to maintain the jurisdiction of the ECJ over EU nationals and their businesses operating in the UK post-Brexit. Prime Minister Theresa May, on the other hand, has made “freedom from EU law” one of the banners of her electoral campaign. Indeed, the spurious claim of repatriating legal powers from the EU was a central theme of the Leave campaign during the UK referendum.

The reason why the Singapore decision does not make it easier for Brexit therefore is that (in the event of loss of jurisdiction by the ECJ over the UK) the EU is likely to insist upon some sort of supra-national mechanism for dispute resolution post-Brexit. ISDS will be the only tool available to the EU to ensure adequate standards of treatment for European business interests in the UK. And this will require the more cumbersome ratification process envisaged by the ECJ decision.

So, contrary to what has been reported in much of the financial press on this issue, things did not get any easier for the UK with the EU’s ruling on Singapore. Difficulties could arise in the ratification of a future EU-UK trade deal – not just its negotiation. Wallonia could yet end up taking control of the UK’s post-Brexit future.