On 30 October the European Commission issued a press release announcing its intention to seek an opinion from the European Court of Justice as to the interpretation of the Lisbon Treaty in the context of the EU-Singapore Free Trade Agreement.

There has been a great deal of furore surrounding the negotiation of the Transatlantic Trade and Investment Partnership (TTIP) between the EU and the United States of America and the agreement in principle of the text of the Comprehensive Economic Trade Agreement (CETA) between the EU and Canada, largely focused on the need for investment protection and the use of Investor State Dispute Settlement (ISDS). As a result, the conclusion of the Free Trade Agreement talks between the European Union and Singapore on 17 October 2014 has been overlooked by many. However, the conclusion of these talks has brought one of the many unresolved issues in this area to a head.

The Treaty on the Functioning of the European Union (TFEU or The Lisbon Treaty) came into force on 1 December 2009. Within the Lisbon Treaty, the EU is given exclusive competence over Common Commercial Policy, set out in Articles 206 and 207 TFEU as including “the progressive abolition of restrictions on international trade and on foreign direct investment“.

The extent of the EU’s power in respect of foreign direct investment has been a controversial issue since the Lisbon Treaty came into force. The Commission has interpreted the treaty broadly as allowing the EU the power to negotiate and conclude (within its exclusive competence) international agreements regarding FDI, including both Free Trade Agreements (FTAs) and International Investment Agreements or BITs.

Many Member States have taken an alternative interpretation, arguing that the powers ceded to the EU relate only to the admission of investments and to the narrow category of “Foreign Direct Investment”. Under their interpretation, the type of portfolio investments and “investment protection” covered by Investment Treaties (including ISDS) does not fall within the term “FDI” and, where such issues are addressed by such international agreements, they remained a shared competence, needing approval from both the EU and individual member states.

The precise scope of the EU’s exclusive competence regarding extra-EU investment agreements is therefore uncertain and a matter of some contention between the Council (comprised of the heads of State or Government of the Member States) and the Commission. With the conclusion of the EU- Singapore FTA, the Commission has clearly decided to address the question of its competence head on rather than to allow the uncertainty to continue. This may also be a necessary practical step since nations seeking to enter into investment agreements with the EU will certainly want this question resolved, if only to ensure the correct approvals are obtained.

Intriguingly the request from the Commission relates only to the specific agreement with Singapore and expressly states that “In case of the EU-US trade talks, for instance there will most likely be a number of elements that will require ratification by national parliaments“. Quite what differentiates the Singapore FTA and the TTIP sufficiently for the Commission to believe that the former but not the latter would fall within its exclusive competence is as yet unclear.

The European Court of Justice’s opinion will be awaited with interest. Even if it draws a line under this particular question, further issues still remain outstanding regarding the EU’s approach to international investment treaties. These include the scope of investment treaty standards viz-a-viz the standards provided under EU law; the ability of investment tribunals to rule on EU law and whether this usurps the exclusive power of the CJEU; and last but by no means least, the inclusion or otherwise of ISDS within EU-negotiated investment treaties. Controversy seems likely to follow this area for some time to come.

For further information, please contact Matthew Weiniger, Partner, Vanessa Naish, Professional Support Lawyer or your usual Herbert Smith Freehills contact.

Matthew Weiniger QC
Matthew Weiniger QC
+44 20 7466 2364
Vanessa Naish
Vanessa Naish
Professional Support Lawyer
+44 20 7466 2112


Herbert Smith Freehills LLP is licensed to operate as a foreign law practice in Singapore. Where advice on Singapore law is required, we will refer the matter to and work with licensed Singapore law practices where necessary.