Europe's Top Court Says Trade Pacts Need Consent From All EU Countries -- Update

By Emre Peker Features Dow Jones Newswires

The European Union's top court on Tuesday curbed the bloc's power to sign off trade pacts without explicit backing from EU members in a decision that poses risks to future deals, including with Britain.

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Judges in the Luxembourg-based court said a free trade agreement between the EU and Singapore concluded in 2014 would have to be ratified by the bloc's members to take effect.

That comes as a blow to the EU's executive arm, the European Commission, which has the sole power to negotiate trade accords on behalf of the bloc. While the commission in reality needs broad support among EU members to ink a trade deal, it had claimed the legal remit to adopt some pacts without formal backing from each state.

"The EU is not endowed with exclusive competence," the European Court of Justice said, citing shared authority over some portfolio investments and dispute settlement between investors and countries. "The free trade agreement with Singapore can, as it stands, be concluded only by the EU and the member states acting together."

While the decision is a setback to the commission and the European Parliament, both of which argued that the EU had broader power vis-à-vis the bloc's members, it is not as expansive as had been expected.

In December, an adviser to the court argued that EU members also share some authority over labor and environmental standards, government procurement and trade in several transport services, and certain aspects of intellectual property rights. The judges, who often follow the advocate general's opinion, didn't follow that advice, however, constraining EU members' remit to dispute settlement and certain foreign investments.

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That means that Brussels could still ratify alone trade pacts with a relatively narrower scope.

Still, the ruling complicates Brussels's push to position itself as the world's free-trade champion at a time the U.S. sends protectionist signals, and could expose its wide-ranging pacts to populist backlash across Europe. The EU is currently pursuing trade deals with Japan and Mexico, among others.

It also casts a shadow over upcoming divorce talks with the U.K., introducing uncertainty over the EU's ability to speedily deliver a future trade deal once Brexit is done. The bloc, however, has signaled that any future EU-U. K. trade agreement would need the backing of all its 27 remaining members.

"This gives us very welcome and much-needed clarity about" the EU's trade powers, said European Commissioner for Trade Cecilia Malmstrom in a post on her official Twitter account.

Having lost its effort to sideline national capitals from signing off on trade accords, Brussels now has to convince as many as 38 national and regional parliaments to ratify the Singapore trade pact.

That sets the scene for another potentially bruising battle, just months after Belgium's Wallonia region--home to less than 1% of the EU's population-- almost derailed a landmark agreement with Canada.

EU governments agreed to transfer broad swaths of their trade authorities to the bloc's executive with the Lisbon Treaty, in force since December 2009. But amid ongoing differences between member states and the commission over the power-sharing agreement, the bloc's trade chief decided to appeal to the ECJ to clarify Brussels' exact powers. That move turned the Singapore deal into a test case.

Tuesday's ruling confirmed that EU states retained power over critical areas such as non-direct foreign investments and dispute settlement, which emerged as one of the most contentious issues in the Canada deal.

The bloc's governments already grant the commission's negotiating mandate -- outlining the scope of any agreement.

Tuesday's decision is poised to enshrine a delicate balancing act between national interests and the bloc's overarching policies.

For the U.K., where some officials were eyeing the Singapore agreement as a model, the ruling dampens hopes of quickly clinching a trade pact after completing Britain's expected departure from the bloc in 2019. Traditionally, it has taken EU member states a year or more to fully ratify trade deals.

"We note the Court's opinion," a U.K. government spokeswoman said.

The Southeast Asian country is the EU's largest trade partner in the region, with bilateral annual trade and stock investments in excess of EUR250 billion.

Jason Douglas in London contributed to this article

Write to Emre Peker at emre.peker@wsj.com

(END) Dow Jones Newswires

May 16, 2017 07:22 ET (11:22 GMT)