Singapore's free trade deal with the European Union may have hit a snag after the EU's top court ruled that all EU trade deals must be ratified by the union's 38 national and regional authorities.
The European Commission and Singapore had completed negotiations on the EU-Singapore free trade agreement (EUSFTA) in October 2014.
The commission, which negotiates trade deals on behalf of the EU's 28 member states, had seen the deal as a new standard that would have required only the green light of the European Council, which comprises officials and ministers from the EU governments, and the European Parliament.
The trade deal came under the spotlight after the commission requested that the court determine whether the EU had the exclusive competence to sign and conclude the EUSFTA.
Yesterday, the European Court of Justice said any trade deal that includes a non-court dispute settlement system would require ratification by the EU's 38 national and regional Parliaments.
"The free trade agreement with Singapore cannot, in its current form, be concluded by the EU alone," it said. The Luxembourg- based court's rulings are binding and cannot be appealed.
The judges said EU nations must also have a say because the EU lacks exclusive rights to sign off on a pact which covers non-direct foreign investment and a system on dispute settlement between investors and governments. These two areas are aspects in which the EU is "not endowed with exclusive competence", the court said.
Singapore's Ministry of Trade and Industry (MTI) said Singapore hopes to have the trade pact partially enforced. "Singapore is committed to working with the European Commission to ratify the EUSFTA expeditiously and have it provisionally applied so that businesses can utilise the parts of the agreement that are under the EU's exclusive competence," it said in response to queries.
The EUSFTA, the first deal between the EU and a South-east Asian country, is aimed at providing greater access to each other's markets, including for service providers, investors and companies interested in public procurement. Customs duties, as well as technical and regulatory barriers to trade, would be removed, improving trade conditions for goods such as chemicals and food products.
The legal decision is seen to have ramifications for the United Kingdom too. The ruling suggests the UK's negotiations for a free trade deal with the EU during the Brexit negotiations could be delayed, according to British media reports.
For instance, a recent deal between the EU and Canada was nearly scuppered by parliamentary objections in Wallonia, the mainly French-speaking part of Belgium, the BBC reported.
The EUSFTA began negotiations in 2010. The EU is Singapore's second-largest trading partner, accounting for 11 per cent of global trade, while Singapore is the EU's largest trading partner in Asean.
CIMB economist Song Seng Wun said judging from the EU-Canada trade deal experience, the decision was "somewhat expected".
He welcomed MTI's suggestion for provisional application, saying "from a business standpoint, whatever makes the process of ratification smoother is welcomed, which is why MTI tried to see what else can be done at this juncture". "This is the beauty and challenge of doing business with the EU. We learn new things along the way," he said.