ASEAN, Freihandelsabkommen und der EuGH

16 October 2019

Over the past few years, the EU has sought more and more intensive economic networking with the emerging economies of Southeast Asia and has already successfully signed two free trade and investment protection agreements with ASEAN countries. This article gives an overview of the negotiations on free trade agreements so far and outlines the important role of the ECJ with regard to the relevant legal issues.

· The recent signing agreements with Singapore (October 2018) and Vietnam (June 2019) represent the first successful negotiations with ASEAN countries to date.

· In two opinions, the ECJ has decided on two important legal issues for these and future free-trade agreements, thereby also shaping the procedure and content of future agreements.

Negotiations on free trade agreements are currently underway with numerous members of the Association of Southeast Asian Nations (ASEAN). The first negotiations started back in 2010 – at that time with the Malaysian government. The recent successes of such FTA negotiations are the signing of free trade and investment protection agreements with Singapore (EUSFTA, October 2018) and Vietnam (EVFTA, June 2019).

Further ongoing or currently dormant negotiations

Negotiations with Malaysia have been fruitful and promising between 2010 and 2012, but have been resting ever since. For a short time, negotiations between Thailand and Thailand took place between 2013 and 2014, but these were interrupted by the seizure of power by the Thai military. Since 2016, negotiations are underway with Indonesia and the Philippines, which have been text-based since 2017. There are currently no negotiations with the other ASEAN countries Brunei, Cambodia, Laos and Myanmar.

Responsibility for the European Parliament and Member States

A first important legal issue related to the conclusion of free trade agreements arose during the negotiation of the agreement with Singapore. This concerned the jurisdiction rules regarding the conclusion and ratification of the agreement on the European side.

The European Commission and the European Parliament considered that the EU, as a supranational organization, was solely responsible for concluding the EUSFTA. The Council of the European Union, consisting of government representatives of the EU Member States and the overwhelming majority of the governments of the Member States, on the other hand, considered that ratification also had to take place in the national parliaments, so that the EU could not provide itself exclusively with the entry into force of the agreement ,

The European legal order provides for a special procedure for cases where there is disagreement about the legality of planned agreements with other states. Member States, the Parliament, the Council and the Commission can call the ECJ and request an expert opinion and decision on the issue. If the ECJ rejects the planned version of the pending agreement, further implementation of the agreement and its entry into force is only possible if the contested components are also changed (see Article 218 (11) TFEU).

At the request of the Commission, the ECJ issued an opinion on 16 May 2017 (Ref. 2/15). In it, he made an important distinction: most of the components of the proposed FTA, in particular issues of mutual market access (customs duties and charges), intellectual property rights and the protection of foreign direct investment in the EU and Singapore, fall into the exclusive competence of the EU , therefore do not require the participation of the Member States. These are very typical components of free trade agreements.

On the other hand, the proposed agreement with Singapore also involved two aspects, which concern both the EU and the Member States, with regard to which shared competence should be assumed. On the one hand, this applies to all regulations which are applicable not only to direct investment in the respective foreign countries but also to so-called portfolio investments, in which no control over a foreign company is to be exercised. On the other hand, regulations on dispute settlement proceedings between foreign investors and the states involved also fall within the shared competence. In the latter case, the ECJ argued above all that, insofar as an agreement provides for the establishment of special investment arbitration courts, the jurisdiction of the contracting states is in some cases restricted.

As a consequence, both the EUSFTA and the EVFTA have been split into two separate partial agreements: a classic free trade agreement and an investment protection agreement, covering all investment protection and dispute resolution issues, which are also subject to the approval of the Member States.

Investment protection agreement compatible with EU law

So while a procedural jurisdictional issue had to be clarified here, the ECJ opinion submitted on 30 April 2019 (Case 1/17) concerned a substantive law issue: the admissibility of special investment arbitration courts under EU law.

More specifically, within the EU, politically explosive and medially broad disagreements have arisen over whether the disputes mechanisms foreseen under the proposed Free Trade Agreements with the United States (TTIP) and Canada (CETA) involving independent, non-state investment arbitration courts are in breach of EU law. The CETA mechanism, which has been reviewed by the ECJ and is also based on the agreements with Singapore and Vietnam, provides for the establishment of an investment jurisdiction established outside the respective state jurisdiction, which is to follow arbitration rules (typically ICSID or UNCITRAL).

The fundamental objections to this system were that it threatened to undermine the exclusive jurisdiction of the ECJ to interpret EU law and endanger the right of access to an independent court.

The ECJ responded to these concerns by stating that investment courts could not override the rules of jurisdiction under EU law, so that the ultimate jurisdiction of the ECJ for questions on the distribution of responsibilities was always respected. In addition, the procedural and substantive guarantees of independence and accessibility are sufficient, even for small and medium-sized enterprises, to ensure the necessary access to independent courts for the relevant investors of all sizes in accordance with Union law.

Further ASEAN agreements for dynamic growth and intensive trade

This ECJ decision contributes significantly to the further contouring of the legal framework within which further free trade agreements between the EU and ASEAN states can be concluded in the future.

The ASEAN region, home to some 625 million people and more than the EU, which accounts for around 8% of global economic output and has created major global export centers for key industries, may thus be even closer to the EU in the future become. For European companies and investors, this means more legal certainty and more predictable framework conditions for dynamic growth and intensified trade relations with Southeast Asia.