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On 16 May 2017, the Court of Justice of the European Union (“Court”) issued an opinion 2/15 deciding the question whether the EU has an exclusive competence to conclude free trade agreement with Singapore (EUSFTA). The Court held that EUSFTA cannot, in its current form, be concluded by the EU alone, because provisions on non-direct foreign investment and the regime governing dispute settlement between investors and States fall within the competences shared between the EU and the Member States. The opinion may have important consequences for the future of investment arbitration.

On 20 September 2013, the EU and Singapore initiated the text of a free trade agreement. The agreement is one of the first ‘new generation’ bilateral free trade agreements, that is to say, a trade agreement which contains, in addition to the classical provisions on the reduction of customs duties and non-tariff barriers in the field of trade in goods and services, provisions on various matters related to trade, such as intellectual property protection, investment, public procurement, competition and sustainable development. EUSFTA includes also a chapter on investor-state dispute settlement, which enables an investor to initiate investment arbitration against a host state for infringement of its obligations regarding the investment protection.

The European Commission submitted a request to the Court of Justice for an opinion to determine whether the EU has exclusive competence enabling it to sign and conclude the envisaged agreement by itself. The Commission and the Parliament contended that that is the case. The governments of all the Member States which had submitted observations to the Court asserted that the EU cannot conclude the agreement by itself because certain parts of the agreement fall within a competence shared between the EU and the Member States, or even within the exclusive competence of the Member States. The Court took the latter view.

The Court found that the regime governing dispute settlement between investors and States 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. As a consequence EUSFTA, in its current form, may only be concluded with the consent of all Member States.

The Court’s opinion will have far-reaching consequences with regard to all the treaties negotiated by the EU (e.g. treaties with Japan and Indonesia). In all these cases, the Member States will have to consent to inclusion of a chapter on investor-state dispute settlement providing for investment arbitration. This may lead to the situation when provisions on dispute settlement will be separated from main bodies of the future agreement concluded solely by the EU and left to be negotiated by the Member States.

Prepared by Aleksandra Orzeł, associate, Łaszczuk and Partners

Press release from the Court: https://curia.europa.eu/jcms/upload/docs/application/pdf/2017-05/cp170052en.pdf

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