Select Committee on European Communities Tenth Report


Note from the Legal Adviser on competence in the WTO

At its meeting on 22 February, Sub-Committee A (Economic and Financial Affairs, Trade and External Relations) decided to seek a note from the Legal Adviser "on the sources and extent of Community competence in relation to WTO negotiations". This Note seeks to provide a response to that request.

(a) Legal Personality

a   The Community has legal personality by virtue of Article 281 of the EC Treaty and capacity, within its field of competence, to enter into obligations binding in international law. The Community is party to a wide variety of international agreements. It is also a member of a number of international organisations. However, the Treaties do not expressly confer legal personality on the European Union and consequently, it is argued, the Union has no power to contract obligations binding in international law or to belong to international organisations.

(b) Sources of Community competence
The Community's competence to conclude international agreements arises from two sources:

(i)  Express provisions in the Treaty. For example, Article 133 enables the Community to enter into tariff and trade agreements within the scope of the Common Commercial Policy. Other examples can be found in Article 111 (monetary and foreign exchange agreements), Article 155 (TENs), Article 174 (Environment) and Article 181 (Development co-operation);

(ii)  The jurisprudence of the European Court of Justice. The Court has held that external competence may flow from other provisions of the Treaty and measures adopted within the framework of those provisions. Thus the existence of "internal rules" or of unexercised Treaty powers to adopt such rules confers external competence on the Community.

(c)  Competence - the legal implications
The Community's ability to conduct external relations is restricted, as a matter of law, to those areas where it has competence. On the other hand, where and to the extent that the Community has competence, Member States' freedom of action, for example, to enter into agreements between themselves or with third States is limited. This is a consequence of the supremacy/primacy of Community law—Member States cannot prejudice the operation of Community law inter alia by entering into external obligations.

Where the transfer of competence is partial, because the Treaty expressly preserves Member States' competence (for example, Article 174 (4)) or the internal rules do not occupy the whole field, then the Community and the Member States share competence. Both will be parties to the international agreement, which is commonly referred to as a "mixed agreement". Internal and external competence are therefore directly related.

The precise extent of Community competence in relation to a particular subject or agreement is frequently a matter of concern and debate between the Commission and the Member States. (The external competence implications of a proposal may therefore influence Member States' decisions on the adoption or extension of internal rules.) History shows this to have been the case in relation to the GATT/WTO.

(d)  The Common Commercial Policy
It is clear that the Community has competence in relation to external trade matters. Articles 131-134 enable the Community to conduct a common commercial policy with third States. The policy has facilitated the establishment of a customs union between the Member States and is based on uniform principles with regard to such matters as tariff rates, the conclusion of tariff and trade agreements with third States, import and export policy. It has been long recognised that the common commercial policy is an area where the Community has exclusive competence. But the precise scope of the common commercial policy has been hotly debated. In particular, does it include services, transport and intellectual property rights? The matter came before the Court of Justice prior to the conclusion of the Uruguay Round (a political compromise was reached between the Commission and the Member States as regards the actual negotiation).

(e) The Court of Justice's Opinion 1/94 [1994] ECR I-5267
In a lengthy, detailed and somewhat complex ruling the Court held that the common commercial policy covered some, but not all, modes of supplying services. Following the approach of the General Agreement on Trade in Services (GATS), it distinguished four different ways in which services were supplied: cross-border supply, consumption abroad, commercial presence and movement of persons. Only the first falls within the common commercial policy. The Court also held that international agreements in the field of transport were excluded from the scope of the common commercial policy: transport was the subject of a separate and specific title of the Treaty. Further, the Court held that those parts of the Agreement on Trade-Related Aspects of Intellectual Property (TRIPs) which dealt with intellectual property rights were outside the scope of the common commercial policy. But the Court went on to reaffirm its jurisprudence on the sources of Community competence (see paragraph (c) above) and found, after a detailed examination of the acquis, that the Community had, by virtue of relevant existing "internal rules", (limited) competence in relation to transport and intellectual property.

(f)  The Community's participation in the WTO and the agreements reached in the Uruguay Round
Both the Community and the Member States are party to the WTO agreement and associated agreements. The formal complexity of the legal position regarding the Community's competence in relation to WTO matters can be seen from the legal base given to the Council's decision approving Community membership. The decision was based on (old numbering) Articles 43, 54, 57, 75, 84(2), 99, 100, 100a, 113 and 235, in conjunction with the second subparagraph of Article 228(3) of the Treaty. Article 113 (now 133) provides, as explained in para (d) above, the legal basis of the common commercial policy. The other Articles (or more precisely one or more of them as the case may be) provide the legal base for the relevant "internal rules" in the areas of services, establishment, transport and intellectual property.

(g) The Amsterdam Treaty
The Amsterdam Treaty inserted a novel provision (Article 133(5)) permitting the scope of the common commercial policy, and therefore exclusive Community competence, to be extended to cover services and intellectual property. This responds to the Court of Justice's Opinion 1/94, dealing with the Community's accession to the WTO agreements, described in paragraph (e) above. The unanimous agreement of the Council is needed to effect such a change. However, as will be appreciated, because of the logical relationship between the exercise of internal competence and external competence the Community's powers in these areas may increase (gradually and sometimes by QMV) as more "internal rules" are adopted.

(h) A wider agenda for the WTO
If the agenda of the WTO extends (further) into matters less directly related to trade it will be necessary, as at the time of the Uruguay Round, to see if and to what extent those matters fall within the scope of the common commercial policy or under other provisions of the Treaty giving the Community express powers to enter into external agreements. If they fell outside those provisions, an examination of internal competence, potential or exercised, would be needed to ascertain the precise extent of the respective competences of the Community and the Member States. Finally it should be noted that even where a Member State retains the ability to act unilaterally it may be constrained by the duty of co-operation (in Article 10 of the EC Treaty) which requires Member States to abstain from any measure which could jeopardise the objectives of the Community.

1 March 2000

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