A Free Trade Agree­ment be­tween EU and Sin­ga­pore is fi­nally mov­ing for­ward.

Norway-Asia Business Review - - Contents - DR. DEB­O­RAH ELMS, EX­EC­U­TIVE DI­REC­TOR, ASIAN TRADE CEN­TRE, SIN­GA­PORE PHOTO: SHUTTERSTOCK

Nearlyall of the agree­ment will now start com­ing into force af­ter an ex­change of sig­na­tures and com­pa­nies can pre­pare for the ben­e­fits of this FTA. The spe­cific is­sue be­fore the Court dealt with an in­ter­nal EU mat­ter over whether trade and in­vest­ment could be ne­go­ti­ated strictly by the Euro­pean Union on be­half of all mem­ber states or needed di­rect ap­proval—in whole or in part—by in­di­vid­ual mem­ber states.

Clearly, this mat­ters to the EU and its mem­ber states. But it also af­fects oth­ers in Asia and be­yond be­cause what­ever the Court de­cided could em­power or con­strain the EU to ne­go­ti­ate bet­ter or worse trade agree­ments with part­ners across the globe.

If the Court had said that the EU could not ne­go­ti­ate on be­half of mem­ber states large swathes of is­sues that are now in­cluded in mod­ern trade agree­ments, this would be prob­lem­atic.

If the EU were al­lowed to talk about trade in goods and ser­vices but not in­vest­ment, not in­tel­lec­tual prop­erty (IP) rights, not dig­i­tal trade or not fu­ture top­ics, this would be deeply prob­lem­atic from the per­spec­tive from the view of com­pa­nies. Af­ter all, firms gen­er­ally do not split out their trade in goods from their in­vest­ment de­ci­sions, or their IP or dig­i­tal strate­gies from their ser­vices.

For­tu­nately, in the EU-Sin­ga­pore FTA rul­ing, the Court took a rel­a­tively nar­row per­spec­tive. It said that the EU had the author­ity (or “com­pe­tence”) to ne­go­ti­ate and ap­prove trade agree­ments on all top­ics ex­cept a very lim­ited slice of in­vest­ment (ba­si­cally port­fo­lio in­vest­ment) and in­vestor pro­tec­tion. These two is­sues will need to be ap­proved by the mem­ber states.

While this ap­proval is be­ing sought for EU-Sin­ga­pore, nearly all of the FTA can be­gin. The agree­ment al­ways had imag­ined a lengthy ap­proval process, so ne­go­tia­tors planned for a pro­vi­sional en­try into force clause that can now be ac­ti­vated for all as­pects of the agree­ment that fall un­der EU com­pe­tence. In prac­tice, this means that 95% or more of the deal will start.

Again—for firms, this means the en­tire EU-Sin­ga­pore FTA agree­ment ex­cept for com­mit­ments on port­fo­lio in­vest­ment prom­ises and the el­e­ments of Chap­ter 9 on in­vest­ment called the in­vestor-state dis­pute set­tle­ment (ISDS) will be start­ing shortly.

It’s been so long since this agree­ment was first ne­go­ti­ated it is worth re­mind­ing read­ers what is ac­tu­ally in­cluded in the deal. The EU-Sin­ga­pore FTA was meant to serve as a model for a fu­ture EU-ASEAN agree­ment. The talks started in 2010 and wrapped up in 2014, with the in­vest­ment chap­ter done in 2015.

The agree­ment cov­ers most goods, in­clud­ing a few new pro­vi­sions on elec­tron­ics and a con­sul­ta­tion process for agri­cul­tural trade reg­u­la­tions. Sev­eral im­por­tant sec­tors have spe­cific cov­er­age un­der the agree­ment. Ser­vices trade was also opened and lib­er­al­ized with a clear eye to­wards craft­ing an ASEAN-wide deal on ser­vices for the fu­ture.

The agree­ment also in­cluded pro­vi­sions on gov­ern­ment pro­cure­ment, new rules on in­tel­lec­tual prop­erty rights in­clud­ing a greatly ex­panded set of cov­ered geo­graph­i­cal in­di­ca­tions, a chap­ter on com­pe­ti­tion, de­vel­op­ment ob­jec­tives, la­bor stan­dards and dis­pute set­tle­ment pro­ce­dures (be­yond those for just in­vestors).

To get a bit more fla­vor of the agree­ment qual­ity, con­sider the mar­ket ac­cess pro­vi­sions for goods. Sin­ga­pore al­ready has duty-free ac­cess. The EU agreed to re­duce its own tar­iffs to match the lev­els found in the 2011 EU-Korean free trade agree­ment within five years of en­try into force. This in­cludes drop­ping tar­iffs to 0 on en­try into force for ap­prox­i­mately 75% of tar­iff lines. Most of the re­main­ing lines are sched­uled to go to 0 across a time pe­riod of 3-5 years, with re­duc­tions tak­ing place in an­nual in­stall­ments.

The EUSFTA con­tains mostly prod­uct-spe­cific rules of ori­gin (ROOs). The agree­ment is ef­fec­tively a bi­lat­eral agree­ment be­tween the EU ( count­ing EU mem­bers as if they were one) and Sin­ga­pore. Hence, the agree­ment does not al­low con­tent from across ASEAN to count to­wards con­tent. This can be a prob­lem for Sin­ga­pore, since the coun­try has very few in­dige­nous items to add to a prod­uct’s con­tent. With raw ma­te­ri­als, parts and com­po­nents usu­ally com­ing from over­seas, it is not al­ways pos­si­ble

to reach high lev­els of lo­cally added con­tent, ab­sent the abil­ity to add up, or cu­mu­late, con­tent from else­where.

Nev­er­the­less, as the EU moves to­wards in­cor­po­rat­ing all the bi­lat­eral trade agree­ments into one re­gion-wide ASEAN agree­ment, it is likely that ASEAN cu­mu­la­tion rules will be built in the fu­ture.

In short, the ap­pli­ca­tion of the EUSin­ga­pore FTA will be quite help­ful for firms. Now other pend­ing agree­ments, like EU-Viet­nam, can also move for­ward. The ag­gre­ga­tion of these deals into a broader ASEAN-wide frame­work will re­ally un­leash new op­por­tu­ni­ties for firms.

But the Court’s rul­ing is not all good news. Split­ting out in­vestor pro­tec­tions is go­ing to be prob­lem­atic. As Talk­ing Trade has noted in the past, in­vestor-state dis­pute set­tle­ment (ISDS) is a very im­por­tant in­sur­ance pol­icy for firms—even if com­pa­nies will never ac­tu­ally use it. While Sin­ga­pore and the EU are un­likely to seize in­vestor as­sets with­out ad­e­quate com­pen­sa­tion, the same can­not be said for some of the other coun­tries in the re­gion.

Ty­ing up the ISDS pro­vi­sions with in­di­vid­ual mem­ber state ap­provals means that the EU is un­likely to ne­go­ti­ate these rules. Or, should it opt to do so, this el­e­ment of fu­ture FTAs will be sig­nif­i­cantly de­layed in en­ter­ing into force as rat­i­fi­ca­tion now in­volves 38 dif­fer­ent na­tional- and sub-na­tional level par­lia­ments.

How­ever, in the mean­time, the de­ci­sion of the ECJ on May 16, 2017, fi­nally un­locks the EU-Sin­ga­pore FTA and makes it pos­si­ble for the EU to move ahead once more with con­fi­dence in ne­go­ti­at­ing trade agree­ments. This is ex­cel­lent news. Com­pa­nies should start plan­ning to use the agree­ment now.

Talk­ing Trade is a blog writ­ten by Dr. Deb­o­rah Elms, Ex­ec­u­tive Di­rec­tor, Asian Trade Cen­tre, Sin­ga­pore.

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