The European Union’s top court has just handed down an important ruling about an otherwise minor trade deal between the EU and Singapore. The two sides initialled the text of the agreement in September 2013, and since then it has been waiting for the Court of Justice of the European Union (CJEU) to hand down its judgment. The issue is who gets to sign off on the deal: is it just the European Union, or do all 28 Member States of the EU need to agree too? There’s clearly a big difference there, because in the latter case, there are 28 opportunities for the deal to be blocked, whereas in the former situation, the EU can simply wave it through on its own.
The CJEU ruling (pdf) is fairly straightforward: the EU can sign and conclude trade deals covering most areas, but not for a few that must involve the EU Member States. Of most significance is the following:
The regime governing dispute settlement between investors and States also falls within a competence shared between the EU and the Member States. Such a regime, which removes disputes from the jurisdiction of the courts of the Member States, cannot be established without the Member States’ consent.
That is, the thorny area of corporate sovereignty, also known as investor-state dispute settlement (ISDS), is one of the few that requires the approval of all Member States. There’s an interesting corollary to that ruling: if the EU wants to agree trade deals as quickly as possible, without the risk of Member States vetoing them — as Wallonia did with CETA — it should not include a corporate sovereignty chapter.
If it seems hopelessly naïve to think that might ever happen, here’s an editorial in a ruthlessly hard-headed newspaper, the Financial Times (FT), recommending that it should (paywall):
[The CJEU’s ruling] would be an excellent opportunity for the EU to go further, and reverse one of its bigger recent errors in trade policy. It should ditch the whole idea of having rules on investment, or at least rules allowing companies to sue a government directly, in FTAs. Such “investor-state” provisions have attracted intense opposition, not just from the Walloons but also from anti-corporate campaigners.
Removing these rules would ease the way for future deals. As they do not seem to encourage foreign direct investment, they are more trouble than they are worth. Freed from this unnecessary encumbrance, the EU would find it easier to sustain with its quiet run of closing bilateral trade
When Techdirt first started writing about corporate sovereignty, four years ago, it was an obscure area of trade policy that few knew about. The insiders who were familiar with the mechanism assumed it was a fixed and indispensable part of free trade deals. Now we have one of the most influential business newspapers calling it an “error” that should be “ditched,” since ISDS chapters are “more trouble than they are worth.” We’ve come a long way.