Documents considered by the Committee on 4 July 2018 Contents

1EU trade deals: EU-Singapore Free Trade Agreement (FTA) and Investment Protection Agreement (IPA)

Committee’s assessment

Legally and politically important

Committee’s decision

Not cleared from scrutiny; recommended for debate in European Committee B; drawn to the attention of the Committee on Exiting the EU, the Foreign Affairs Committee and the International Trade Committee

Document details

(a) Proposal for a Council Decision on the signing, on behalf of the EU, of the Free Trade Agreement between the EU and Republic of Singapore ; (b) Proposal for a Council Decision on the conclusion of the Free Trade Agreement between the EU and the Republic of Singapore; (c) Proposal for a Council Decision on the signing, on behalf of the EU, of the Investment Protection Agreement between the EU and its Member States, of the one part, and the Republic of Singapore of the other part; (d) Proposal for a Council Decision on the conclusion of the Investment Protection Agreement between the EU and its Member States, of the one part, and the Republic of Singapore of the other part

Legal base

(a) and (b): Articles 91, 100(2), 207 and 218(11) TFEU (in accordance with Opinion 2/15 of the Court of Justice of the EU issued on 16 May 2017), in conjunction with 218(5) (on signing) and 218(6) TFEU (on conclusion)

(c) and (d): Article 207 TFEU (in accordance with Opinion 2/15 of the Court of Justice of the EU issued on 16 May 2017), in conjunction with 218(5) (on signing) and 218(6) TFEU (on conclusion)

Department

International Trade

Document Numbers

(a) (39638), 7966/18 + ADDs 1–13; COM(18) 197; (b) (39637), 7967/18 + ADDs 1–13; COM(18) 196; (c) (39635), 7973/18 + ADDs 1–2; COM(18) 195; (d) (39636), 7974/18 + ADDs 1–2; COM(18) 194

Summary and Committee’s conclusions

Overview—content and expected timeline

1.1Negotiations for a trade agreement with Singapore began in 2010 and concluded in October 2014. The agreement was eventually ‘split’ and presented to the Council as two standalone agreements in April 2018, in line with the Commission’s ‘new’ approach to negotiating and concluding trade agreements:1

1.2The separation of ‘EU-only’ trade agreements from ‘mixed’ investment protection agreements follows the Court of Justice judgment of 16 May 2017 on the balance of competences between the EU and its Member States in the EU FTA with Singapore.6

1.3An EU-Singapore Political Cooperation Agreement, which sets out the broader political framework in which the bilateral EU-Singapore FTA and IPA will function, is being developed in parallel.

1.4As the EU-only FTA only requires approval of the Council and European Parliament, and does not require formal ratification by individual Member States, the Commission hopes that the EU-Singapore FTA will avoid the delays recently seen in the implementation of mixed agreements such as the EU-Canada Comprehensive Economic Trade Agreement (CETA), where national or regional parliaments have a direct veto. It is expected to enter into force before UK exit on 29 March 2019.

1.5As the EU-Singapore IPA is a mixed agreement, it will need to be signed and ratified by both the EU and individual Member States in accordance with their domestic procedures, which could take several years.7 Once ratified, the IPA will replace the 12 existing bilateral investment agreements between Singapore and EU Member States. The UK is one of 12 EU Member States that has a bilateral investment treaty (BIT) with Singapore.

The Government’s position on the EU-Singapore FTA

1.6The then Minister of State for Trade Policy (Greg Hands) set out the Government’s position on the EU-Singapore FTA in his Explanatory Memorandum of 3 May 2018.

1.7He listed the following “specific benefits for the UK”:

“a) Immediate duty-free access to the Singaporean market for all products.

“b) Advanced regulatory framework and liberalisation across many services sectors, including financial, legal, healthcare, educational and environmental.

“c) Removal or prevention of a number of many technical barriers to trade and non-tariff measures, such as duplicative testing requirements for motor vehicles and parts, electronics, pharmaceuticals and certain green technologies.

“d) Liberalisation of Singapore government procurement market, including with the fostering of ‘green’ public tendering.

“e) A high level of protection and enforcement of intellectual property rights.

“f) Secured [geographical indication]8 protection for ‘Scotch Whisky’.”

1.8On the implications of the proposed FTA in the wider context of the UK’s exit from the EU, the then Minister notes the EU’s and UK’s “shared aim” for international agreements to which the UK is a party by virtue of EU membership to continue to apply to the UK during the Implementation Period and that “… the EU set out in the draft Withdrawal Agreement that the UK should be treated as a Member State for the purposes of international agreements during the [Implementation Period], including the [EU-Singapore FTA]”. He also states that the Government will continue to work with the Singaporean Government “on the shape of [their] future bilateral trade relationships to come into effect after the [Implementation Period], which includes “securing continuity of the [EU-Singapore FTA]”.

The Government’s position on the EU-Singapore IPA

1.9The then Minister also sets out the Government’s position on the EU-Singapore IPA in his Explanatory Memorandum of 3 May 2018. He notes that the UK has a BIT with Singapore, which would be:

The Government’s position on parliamentary scrutiny of trade deals

1.10The then Minister also refers to “the implications of the change in architecture for parliamentary involvement in the conclusion of the Japan and Singapore agreements”, and offers to work with Parliament “to explore ways to ensure that opportunities for thorough scrutiny remain”.

The Committee’s conclusions and questions to the Government

1.11The Committee notes that the proposed FTA is expected to enter into force before the UK leaves the EU on 29 March 2019, but that the proposed IPA is likely to take several years to ratify and is therefore unlikely to enter into force before 29 March 2019. It is not clear whether or when provisional application of the IPA may be put forward and agreed.

1.12The Committee considers that both proposed agreements—notwithstanding their very different timetables for entering into force—have significant legal and policy implications for the UK, both whilst a member of the EU and after its exit:

1.13We ask the Government to address the outstanding issues identified below within 10 working days:

Expected impact on the UK of the EU-Singapore FTA

1.14The then Minister states that the Government is preparing its own analysis of the EU-Singapore FTA, which it will “make available to Parliament as soon as possible”. We welcome the analysis and ask that the Government:

Continuity of trade relations with Singapore after UK exit from the EU

1.15In view of the Government’s stated aim “for international agreements (to which the UK is a party by virtue of EU membership) to continue to apply to the UK as now” (after 29 March 2019), we ask the Government to set out:

Investment protection and dispute resolution after UK exit

Clarification on the timetable for provisional application and/or conclusion of the IPA and the Government’s position

1.16We note the then Minister’s assessment that the IPA is “unlikely” to enter into force “before the UK leaves the EU” and that “[a]greeing to the signature and future conclusion of the [EU-Singapore IPA] at this time does not bring the [EU-Singapore IPA] into force”. Furthermore, the then Minister’s assessment is that provisional application before UK exit is also unlikely. We ask the Government to:

Clarification on the Government’s future investment policy

1.17In February 2017, the then Minister stated that the Government believes “it is important to have investor protection in [EU trade agreements]” but it remains unclear what form this should be in.12 In October 2017, he stated that the Government’s stated ambitions are to support an investment dispute resolution process that is capable of delivering fair dispute outcomes in a transparent manner, to ethical standards, and in a cost-effective manner.13 With just nine months until the UK’s departure from the EU, we ask the Government to set out its intended approach to investment protection and dispute resolution after 29 March 2019. In particular, does the Government:

1.18In relation to the Commission’s proposed Multilateral Investment Court (MIC), which is intended to replace bilateral ICS included in EU level agreements with the EU’s FTA partners, the then Minister of State for Trade states that “[t]he Government will actively participate in those [MIC] negotiations as a member of UNCITRAL. We will assess the detail of this proposal as it develops, and will consider the compatibility of any outcome with the UK’s interests”.14 Now that negotiations on MIC have started, what is the Government’s assessment of whether any resulting MIC might improve the existing investor-State dispute settlement framework in a cost-effective manner? Furthermore, on exit from the EU, will the UK choose to use the MIC as a forum for investor-state arbitration in its future trade agreements, including with the EU?

Transparency and scrutiny of trade negotiations

1.19We consider that transparency in, and effective public and parliamentary scrutiny of, trade negotiations, both while the UK is a member of the EU and after UK withdrawal (when it is able to operate an independent trade policy) are fundamental to ensuring the democratic accountability of trade deals that the UK intends to become party to.

1.20Whilst the Minister reiterates the Government’s position on the importance of continued scrutiny by national parliaments of external trade agreements, the means of achieving this remain unclear.15

1.21For the negotiation and conclusion of EU trade and investment deals, we ask the Government to set out:

1.22For the negotiation and conclusion of new UK trade and investment agreements we ask the Government to explain:

1.23We recommend these documents for debate in European Committee B for the following reasons:

1.24In the meantime, we retain these documents under scrutiny and draw them to the attention of the Committee on Exiting the EU, the Foreign Affairs Committee and the International Trade Committee.

Full details of the documents

(a) Proposal for a Council Decision on the signing, on behalf of the EU, of the Free Trade Agreement between the EU and Republic of Singapore: (39638), 7966/18 + ADDs 1–13; COM(18) 197; (b) Proposal for a Council Decision on the conclusion of the Free Trade Agreement between the EU and the Republic of Singapore: (39637), 7967/18 + ADDs 1–13; COM(18) 196; (c) Proposal for a Council Decision on the signing, on behalf of the EU, of the Investment Protection Agreement between the EU and its Member States, of the one part, and the Republic of Singapore of the other part: (39635), 7973/18 + ADDs 1–2; COM(18) 195; (d) Proposal for a Council Decision on the conclusion of the Investment Protection Agreement between the EU and its Member States, of the one part, and the Republic of Singapore of the other part: (39636), 7974/18 + ADDs 1–2; COM(18) 194.

Background

Timeline

1.25Negotiations between the EU and Singapore on this trade deal were launched in 2010 (based on the ASEAN negotiating directives adopted by the Council in 2007, which were then modified in July 2011 to authorise the Commission to open negotiations on investment protection provision within the FTA with Singapore).

1.26The Commission referred the agreement to the CJEU for an Opinion on competence in 2015, as there was disagreement over whether some of the areas covered by the FTA were Member State, mixed or EU competence. On 16 May 2017, the CJEU issued its opinion (Opinion 2/15), stating that the EU-Singapore FTA also covered shared competences such as investor State dispute settlement and non-direct foreign (portfolio) investment.

1.27The proposed Decisions on the signature and conclusion of the FTA and IPA were presented to the Council on 18 April 2018.

1.28The Council Decisions on signature and conclusion of the FTA and IPA are expected to be voted on by the Council on 15 October 2018, ahead of signature at the 12th Asia-Europe Meeting (ASEM) summit which is due to take place on 18–19 October 2018.

Content of the FTA and IPA

1.29See the Commission’s guide to the EU-Singapore FTA and IPA of April 2018 and the then Minister’s Explanatory Memoranda of 3 May 2018 on the proposed FTA and IPA, listed above.

The new architecture of EU trade agreements

1.30On 22 May 2018 Trade Ministers agreed Council Conclusions on the negotiation and conclusion of EU trade deals.

1.31The Conclusions approve the Commission’s plans to propose negotiating directives for EU-only trade deals separately from mixed competence investment agreements “with a view to strengthening the EU’s position as a negotiating partner”.

1.32However, Member States stress that, “it is for the Council to decide whether to open negotiations on this basis [… and] it is equally for the Council to decide, on a case-by-case basis, on the splitting of trade agreements”. Referring explicitly to the EU’s ongoing trade talks with Mercosur, Mexico and Chile, the Conclusions state that those deals “will remain mixed agreements”.

1.33Furthermore, the Council also stresses that national parliaments and civil society must “be kept duly informed” and that the Council will “continue endeavouring to obtain, to the greatest extent possible” a consensus that reflects all Member States’ interests.

Continuity of trade relations during the scheduled transition/implementation period

The draft Withdrawal Agreement of 19 March 2018

1.34Article 124 of the EU’s draft Withdrawal Agreement of 19 March, which has been agreed by the UK (subject to the proviso that “nothing is agreed until everything is agreed”) addresses EU external agreements. It provides that:

1.35A footnote to Article 124 states that “The Union will notify the other parties to these agreements that during the transition period, the United Kingdom is to be treated as a Member State for the purposes of these agreements”.

1.36In the Government’s response to the International Trade Committee Report on ‘Continuing application of EU trade agreements after Brexit’ of 15 May 2018, the Government does not state that third party agreement is necessary:

“As agreed at March European Council, the EU has stated in the draft Withdrawal Agreement that the UK is to be treated as a Member State for the purposes of international agreements during the Implementation Period.

“It is a process of transition, rather than a new agreement. The EU’s notification is expected to cover the UK and all Member States’ agreement to this approach.

“In parallel to this, we continue to work bilaterally with partner countries to ensure continuity of effect for our international agreements beyond the Implementation Period.

[…]

“It remains the case that all partner countries are committed to ensuring there is no disruption to our trading relationship. We have a mature relationship with our partner countries, and in discussions cover a range of scenarios to ensure continuity.

“In parallel to arrangements for the Implementation Period, the Government continues the important work with partner countries to ensure continuity of effect of our international agreements beyond the Implementation Period, to avoid any disruption in trade from January 2021 onwards.”

Overview of the Investor-State Dispute Settlement (ISDS), Investor Court System (ICS) and Multilateral Investment Court (MIC)

1.37Following public and political opposition to ISDS provisions in FTAs, given their perceived lack of independence, consistency and transparency, in 2015 the Commission put forward an investor court system (ICS) for each of its new FTAs, beginning with Vietnam and Canada (CETA). The ICS is intended to establish permanent and more independent arbitral mechanisms.

1.38However, the Commission considers that the ICS fails to deal with the need to maintain consistency of case law and will also become a financial and human resource drain on the EU as the number of individual investment courts established under each new FTA multiplies. In September 2017, the Commission put forward a proposal for the opening of negotiations of a multilateral investment court (MIC)—an international court empowered to hear disputes over investments between investors and States that accept its jurisdiction over their BITs. It would be permanent and independent and consist of a tribunal of first instance and an appeal tribunal. Running costs of the court would be met by the contracting parties, and the Commission estimates that the share apportioned to the EU and Member States would be around €5.4 million (£4.97 million). This compares with the option of maintaining the status quo of ISDS and individual investment courts under each of the EU’s new FTAs, which comes to a cost of around €9 million (£8.23 million).

1.39Further information on, and the differences between, ISDS, ICS and the MIC are set out in the Commission Factsheet of September 2017 on the MIC.

1.40In his Explanatory Memorandum of 5 October 2017, the then Minister of State for Trade Policy and Minister for London (Greg Hands) indicated the Government’s support for “the principle of ensuring investor-state arbitration delivers fair dispute outcomes, is transparent and maintains high ethical standards.” He added that the Government will wish to consider whether the proposed MIC “improves the existing investment dispute settlement framework and does so in a cost-effective manner”.

Transparency in, and scrutiny of, trade agreements

As a member of the EU (until 29 March 2019) and during any transition/implementation period

1.41The Government recognises that the EU’s ‘new approach’ to negotiating and concluding EU trade agreements will have implications for the scrutiny of EU only FTAs by national parliaments:

“Mixed agreements involving shared competence between the EU and its Member States require ratification by Member States before they can enter into force, whereas EU-only competence agreements do not and enter fully into force following approval and conclusion by the Council and the European Parliament, and ratification by the third-country. ln this respect I am aware that concluding FTAs as EU only agreements will have implications for the involvement of the UK Parliament in concluding EU FTAs, with formal scrutiny ahead of the Council Decisions on signature and conclusion no longer accompanied by a domestic ratification process.”17

1.42The Government commits to working with both the European Scrutiny Committee and House of Lords European Scrutiny Committee “to explore ways to ensure that opportunities for thorough scrutiny remain”.18

Future UK trade and investment agreements

1.43The Government’s command paper, Preparing for our future UK trade policy, published on 9 October 2017, states that the Government will “continue to respect the role of Parliament…in preparing for and giving effect to an independent UK trade policy”.

1.44It remains unclear how parliamentary scrutiny of UK trade negotiations (after 29 March 2019) will function, or what specific undertakings the Government will undertake to ensure a meaningful and transparent scrutiny framework.

Previous Committee Reports

None.


2 An ‘EU-only’ agreement comprises ‘exclusive EU’ competence provisions, which only the EU can exercise and Member States cannot.

3 FDI involves the investor retaining management control of the investment vehicle (e.g. a subsidiary) in the host state.

4 ‘Portfolio investment’ is any investment that is not FDI (see above).

5 A ‘mixed’ agreement means that there are parts for which the EU is exercising competence and other parts for which Member States are exercising their competence, and must therefore be entered into by both the EU and its Member States in their own right.

6 See the Minister’s summary of the Court of Justice Opinion in his letter of 13 July 2017.

7 In the case of the EU-South Korea Free Trade Agreement (FTA), which is also a mixed agreement, completion of the national ratification process in all EU Member States took over four years (source: http://www.europarl.europa.eu/sides/getAllAnswers.do?reference=P-2016–009651&language=EN) .

8 The World Intellectual Property Organisation defines a geographical indication (GI) as “a sign used on products that have a specific geographical origin and possess qualities or a reputation that are due to that origin. In order to function as a GI, a sign must identify a product as originating in a given place. In addition, the qualities, characteristics or reputation of the product should be essentially due to the place of origin. Since the qualities depend on the geographical place of production, there is a clear link between the product and its original place of production.”

10 A most favoured nation provision requires a party to the agreement (in this case either EU or Singapore) to give to the other party any more favourable terms it accords to another state in any other agreement it enters into, as would happen if Singapore gave the UK more favourable terms than in its agreement with the EU.

11 Most BITs contain a “sunset clause”, providing for their provisions to continue in effect for a specified period following termination. Sunset clauses mean that a state will remain bound by its treaty obligations for a period of time notwithstanding a decision to terminate. The EU-Singapore IPA sets a time limit for subsequent sunset clause provisions in existing BITs of three years (paragraph 3c of Article 4.12), whereas the UK-Singapore BIT has a 10 year sunset clause (http://investmentpolicyhub.unctad.org/Download/TreatyFile/2261, Article 14.

15 The Government’s command paper, Preparing for our future UK trade policy, published on 9 October 2017, states that the Government will “continue to respect the role of Parliament…in preparing for and giving effect to an independent UK trade policy”.

16 As stated by the then Minister of State for Trade (Greg Hands) in his letter to the European Scrutiny Committee of 11 June 2018 (p.10, para 3).




Published: 10 July 2018