Introduction

On October 17 2014 the European Union and Singapore concluded negotiations on investment rules in their comprehensive free trade agreement, paving the way for the signing, ratification and entry into force of the agreement. All other aspects of the negotiations had been concluded when the two trading partners initialled the text of their free trade agreement on September 20 2013.

While the agreement must now undergo domestic ratification procedures before entering into force, the former EU commissioner for trade has requested an opinion from the European Court of Justice (ECJ) on its competence to sign and ratify the free trade agreement. The commission is seeking to clarify which of the agreement's provisions are within the European Union's exclusive competence and which must be approved by member states. As stated by Commissioner De Gucht, the interpretation of the Lisbon Treaty by the court will "solve a difference of opinion between the commission and the council on the interpretation of the Lisbon Treaty" with respect to trade matters. The decision to await an ECJ opinion may delay the entry into force of the agreement.

Background

The European Union and Singapore have strong and growing trade relations:

  • Singapore is the European Union's 15th largest partner for trade in goods and its largest trading partner from the Association of Southeast Nations (ASEAN); and
  • The European Union is the largest export destination for Singapore, ahead of China, the United States and other ASEAN countries.

Trade has been increasing between the two partners:

  • between 2008 and 2013 there was a 21% increase in trade in goods; and
  • between 2008 and 2012 there was a 36% increase in trade in services.

The balance of trade in goods, services and foreign direct investment is in favour of the European Union.

Negotiations with Singapore began in 2010 and are part of the European Union's move to engage with Asian trading partners to shore up economic relations. The European Union's foreign trade agreement with Korea (which entered into force in 2011) is the European Union's first foreign trade agreement with an Asian country and the Singapore agreement is the second. The European Union has also launched foreign trade agreement negotiations with ASEAN, India, Japan, Malaysia, Thailand and Vietnam and is pursuing an investment agreement with China.

Trade and investment rules

The free trade agreement between the European Union and Singapore is a comprehensive trade and investment agreement.(1) It covers traditional trade topics, such as:

  • the elimination of tariffs on goods;
  • improved market access for services; and
  • less traditional trade and economic matters, including:
    • IP protection;
    • competition rules; and
    • disciplines on technical barriers to trade and government procurement.

The investment chapter includes a range of investment protection disciplines that cover:

  • expropriation;
  • national treatment;
  • fair and equitable treatment;
  • full protection and security; and
  • free capital movements and payments.

Regarding investor-state dispute settlement, the investment chapter contains extensive rules for the resolution of disputes. Because the European Union is not a state and cannot be a party to the International Centre for Settlement of Investment Disputes (ICSID) Convention, the investor-state dispute settlement provisions make available the following arbitration fora in addition to ICSID:

  • the ICSID additional facility;
  • the United Nations Commission on International Trade Law; and
  • any other fora agreed between parties to a dispute.

The investor-state dispute settlement rules are designed to avoid frivolous suits by including provisions which allow a tribunal to dispose quickly of claims that are "manifestly without legal merit" and "unfounded as a matter of law." The provisions also include three annexes providing:

  • a mechanism for mediation as an alternative to arbitration;
  • a code of conduct for arbitrators; and
  • rules on transparency and public access to disputes.

Comment

The EU-Singapore Free Trade Agreement is a highly ambitious and comprehensive agreement covering all trade, services and investment issues, as well as other modern trade and investment topics. The conclusion of the investment chapter negotiations – including the extensive provisions for investor-state dispute settlement and substantive investment protections – has particular relevance due to the sensitivity of investor-state dispute settlement in the European Union's negotiations with the United States for a transatlantic trade and investment partnership agreement. While investor-state dispute settlement provisions in a future transatlantic trade and investment partnership agreement have recently come under fire in Europe (not least in Germany), the inclusion of investor-state dispute settlement in the Singapore free trade agreement along with its inclusion in the comprehensive economic and trade agreement recently negotiated with Canada offers an incentive to maintain proper and effective dispute settlement provisions as a part of modern investment agreements. The extensive rules (including multiple annexes on investor-state dispute settlement in the EU-Singapore foreign trade agreement) reveal that high-quality investment agreements can respond to any concerns over investor-state dispute settlement without simply jettisoning such provisions from the next generation of trade and investment agreements.

Jordan Shepherd

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