In the wake of the recent agreement of the EU-Canada Comprehensive Economic and Trade Agreement (EU-Canada CETA) and after just over a year of negotiations, the EU and Singapore have released their free trade Agreement (EUSFTA) to the public. (See our recent blog post on CETA here). According to a statement released by the European Commission, the EUSFTA aims to ensure a high level of investment protection, whilst preserving the EU and Singapore’s right to regulate. It will replace the 12 existing Bilateral Investment Agreements (BITs) between Singapore and European Member States. The text of the EUSFTA can be found here.
Whilst the conclusion of this agreement is highly significant, the reference to the European Court of Justice to which it has given rise could perhaps be even more so. Please see our recent blog post here, explaining the European Commission’s request for an ECJ Opinion on the EU’s competence to enter into EUSFTA.
The EU and Singapore are established trading partners, with the EU accounting for almost 10% of Singapore’s global trade in 2013. According to the European Commission, the EU was Singapore’s top partner for imports and third largest trading partner overall, while Singapore was the EU’s 15th largest trading partner. Bilateral trade amounted to EUR 46.7 billion. EU Trade Commissioner Karel De Gucht commented that the EUSFTA “will help boost economic growth, investment and job creation in the EU. It will help opening the door for Europe to the ASEAN market with 600 million consumers”
Investment protection in EUSFTA – what’s new?
In this context, the EUSFTA seeks to improve the existing dispute resolution provisions in the BITs between Singapore and the EU Member States by incorporating several innovations:
- More clarity is provided around the standards of expropriation and fair and equitable treatment in order to circumscribe them and avoid reliance on the interpretation of previous cases.
- The concept of protecting an investor’s ‘legitimate expectation’ that has given rise to concern amongst stakeholders in that it limits a state’s ability to regulate, has also been delimited. It does not protect an expectation that an investment will make money or that the regulatory environment will not change.
- The EUSFTA also attempts to limit frivolous or multiple actions by preventing parallel claims before domestic courts and arbitral tribunals. It includes a ‘fork in the road provision’ whereby a decision to go to arbitration is final and precludes seeking remedies in the local courts.
- Unlike the BITs this treaty will replace the EUSFTA introduces transparency provisions, in line with developing practice and with the ICSID Rules themselves. All documents will be made available to the public, and interested parties, such as NGOs, will be able to access hearings and make submissions.
- In another departure from the existing BITs, the EUSFTA places great weight on the prevention of conflicts of interest and the promotion of consistency of arbitral awards. It introduces both a binding code of conduct for arbitrators and mediators (the “Code”) and, similar to the EU-Canada CETA, a preselected and agreed list of ten arbitrators from which an arbitrator will be appointed in the event that a party fails to appoint an arbitrator or the parties are unable to agree on a chairperson, thereby ensuring that each party will always have agreed to at least two out of three tribunal members.
The Code, found at Annex 9-B of the EUSFTA, arguably imposes a higher standard of conflict and disclosure obligations on arbitrators than in any other rules or guidelines, including the UNCITRAL Model Law, UNCITRAL Arbitration Rules and the 2004 IBA Guidelines of Conflicts of Interest for International Arbitration. Going beyond the requirements for independence and impartiality, as found in the IBA Guidelines for example, arbitrators must also “avoid impropriety and the appearance of impropriety” and “avoid direct and indirect conflicts of interest” (Paragraph 2 of the Code). Further, they must, on an on-going basis, “avoid creating appearance of bias or impropriety” and “not be influenced by self-interest, outside pressure, political considerations, public clamour, loyalty to a disputing party or a non-disputing Party or fear of criticism” (Paragraph 10). Prior to confirmation of his appointment, an arbitrator must disclose “any past or present interest, relationship or matter that is likely to affect his or her independence or impartiality or that might reasonably create an appearance of impropriety or bias in the proceeding” (Paragraph 3). There is no list of safe harbours, as in the IBA Rules’ “Green” List. If an arbitrator breaches the code, he/she will be replaced, as assessed by an independent body, the Secretary General of ICSID.
Chapter 9 (the Investment Protection Chapter) will now undergo “legal scrubbing” and negotiations between the parties will be finalised. The EUSFTA represents the first free trade agreement between the EU and a Southeast Asian country and many more are expected to follow in its footsteps. Negotiations are reportedly taking place between the EU and Vietnam, Malaysia and Thailand.
Nonetheless, the exact extent of the EU’s competence to continue entering into these treaties in place of the constituent Member States and the extent to which its duties and obligations are shared with those States, remains to be opined on by the ECJ.
For further information, please contact Matthew Weiniger QC, Partner, Joanne Greenaway, Professional Support Lawyer or your usual Herbert Smith Freehills contact.