Opinion procedure 2/15

Arguments

Non-tariff barriers to trade and investment in renewable energy generation

467.The Commission claims that the European Union has exclusive competence over Chapter Seven on the basis of Article 207(1) TFEU. On the one hand, that chapter requires the removal or reduction of barriers to trade (both tariffs and non-trade barriers) and investments and requires regulatory convergence in order to facilitate trade. On the other hand, it also has links with foreign direct investment: it precludes the Parties from requiring the formation of partnerships with local companies.

468.The Parliament and the Council have made no specific arguments in relation to Chapter Seven.

469.Some Member States submit that the objective of Chapter Seven is to reduce greenhouse gas emissions by promoting the production of renewable energy and that it therefore relates to environmental policy (Article 191 TFEU) rather than the common commercial policy.

Trade and sustainable development

470.The Commission submits that, pursuant to Articles 3(1)(e) and 207(1) TFEU, Chapter Thirteen falls entirely within the European Union’s exclusive competence. Competence over the common commercial policy is not limited to adopting instruments that have an effect only on the traditional aspects of external trade. Discrepancies in the levels of environmental and labour protection between States can have direct and immediate effects on international trade and investment. Lower standards of protection in one of the Parties can enhance trade and investment in its territory. Conversely, environmental and labour standards can become disguised trade barriers. As is apparent from, inter alia, Article 13.1.1 of the EUSFTA, the EUSFTA is aimed at developing and promoting international trade in such a way as to contribute to sustainable development, which comprises economic development, social development and environmental protection.

471.The Commission argues that Chapter Thirteen does not aim to create new substantive obligations concerning labour and environmental protection, but merely reaffirms certain existing international commitments. Its purpose is to ensure that conditions for trade and investment are not adversely affected as a result of different levels of protection.

472.The Commission sees no conflict between, on the one hand, Chapter Thirteen and, on the other hand, Article 3(5) TEU and Article 21(2) TEU. Article 3(5) TEU requires the European Union to incorporate concerns relating to ‘sustainable development of the Earth’ and ‘free and fair trade’ in its common commercial policy. Article 21(2) TEU also includes several objectives related to sustainable development.

473.As regards specific provisions of Chapter Thirteen, the Commission argues, in particular, that the fact that Article 13.3.3 of the EUSFTA contains a commitment to implement effectively certain principles concerning fundamental rights at work does not justify concluding that the Member States should participate in the conclusion of the EUSFTA. That provision does not prescribe the specific manner in which Singapore and the Member States have to ensure effective implementation of the International Labour Organisation (‘ILO’) Conventions that they have ratified. Furthermore, Articles 13.6.2 and 13.8(a) of the EUSFTA merely reaffirm commitments already made. Other provisions (such as Article 13.8(b) to (d)) aim to avoid distorting effects on international trade and are therefore inextricably linked with international trade.

474.The Parliament agrees in essence with the Commission.

475.The Council and several Member States take the view that, although Chapter Thirteen has a link with trade, it also regulates non-trade related aspects of labour, environmental protection and fishing, and aims to promote labour and environmental protection, as well as the conservation of marine biological resources under the common fisheries policy. Those provisions of Chapter Thirteen therefore cannot be based on Article 207 TFEU. The Council also submits that Article 13.3.3 and 13.3.4 of the EUSFTA entails minimum harmonisation of Member States’ legislation in areas where the Treaties exclude it. Should those provisions be part of the common commercial policy, they would be incompatible with Article 207(6) TFEU.

476.Furthermore, the Council and several Member States maintain that Chapter Thirteen is clearly separate from the rest of the agreement. That is evidenced, in particular, by the specific dispute settlement system which applies to that chapter.(364)

477.Finally, the Council argues that the European Union’s exclusive competence to enter into the commitments concerning trade in fish products in Article 13.8 of the EUSFTA results from Article 3(1)(d) TFEU (conservation of marine biological resources under the common fisheries policy) rather than Article 3(1)(e) TFEU (common commercial policy). The primary purpose of Article 13.8 is to ensure the conservation and management of fish stocks in a sustainable manner, and not to facilitate, regulate or govern trade.

Analysis

Trade and non-trade related objectives: general principles

478.The common commercial policy must be conducted having regard to the principles and objectives of the European Union’s external action,(365) which include the development of ‘international measures to preserve and improve the quality of the environment and the sustainable management of global natural resources, in order to ensure sustainable development’.(366) I therefore agree with the Commission that levels of environmental protection demonstrate links with international trade. Significant disparities may distort competition and trade; low standards in one market may result in competitive advantages for domestic undertakings and hence attract foreign investment, to the disadvantage of markets where standards are higher. Conversely, environmental protection standards may be manipulated to achieve protectionist goals.(367) For those reasons, the promotion of sustainable development is among the objectives set out in the preamble to the WTO Agreement.(368) Similar reasoning may be applied to the relationship between labour protection and international trade.

479.However, the fact that the common commercial policy may also pursue non-trade objectives does not mean that Chapters Seven and Thirteen automatically fall within the scope of Article 207(1) TFEU.

480.The Court has already offered some guidance on how to distinguish between measures coming within the scope of the common commercial policy (in that they are essentially intended to promote, facilitate or govern trade and thus have direct and immediate effects on trade),(369) and measures relating to the European Union’s environmental or social policies.

481.Thus, the Court has accepted that EU acts that also pursue objectives that are not purely economic (for example, social, environmental or humanitarian objectives) may fall within the scope of the common commercial policy.(370) However, in every case, the international agreements at issue involved instruments of commercial policy: commercial arrangements for stock-piling in Opinion 1/78; the grant of tariff preferences in Case 45/86; the (conditional) importation of agricultural products in Case C‑62/88; and labelling requirements (that is, technical barriers to trade) in Case C‑281/01. Those are all instruments having direct and immediate effects on trade in the products or services concerned.

482.By contrast, international agreements not specifically related to trade fall outside the common commercial policy, even if they have an indirect connection with trade. Thus, in Opinion2/00, the Court took into account the fact that the rules concerning transboundary movements of living modified organisms contained in the Cartagena Protocol on biosafety, annexed to the Convention on Biological Diversity, were not limited to movements for commercial purposes. It therefore concluded that the main purpose or component of that Protocol was environmental protection rather than the common commercial policy.(371) Likewise, the Court confirmed in Case C‑411/06(372) that the aim of Regulation (EC) No1013/2006 of the European Parliament and of the Council of 14 June 2006 on shipments of waste(373) was not to define those characteristics of waste which would enable it to circulate freely within the internal market or as part of commercial trade with third countries, but more generally to provide a harmonised set of procedures whereby movements of waste could be limited in order to protect the environment.(374) That regulation was therefore validly based on Treaty provisions concerning environmental protection.

483.Against that background, I shall examine whether Chapters Seven and Thirteen fall as a whole within the common commercial policy.

Non-tariff barriers to trade and investment in renewable energy generation

484.Chapter Seven of the EUSFTA aims to protect the environment (and incidentally human health) by ‘promoting, developing and increasing the generation of energy from renewable and sustainable non-fossil sources’, and thus reducing greenhouse gas emissions.(375) However, its scope of application is limited to measures which ‘may affect trade and investment between the parties’ related to the generation of green energy.(376) Whether the European Union enjoys exclusive competence over that chapter on the basis of Article 207(1) TFEU depends on whether it essentially aims to promote, facilitate or govern trade and thus has direct and immediate effects on trade.(377)

485.In my opinion, it does.

486.The provisions found in Chapter Seven are primarily concerned with regulating commercial policy instruments and eliminating trade and investment barriers. Thus, Article 7.4 is about removing barriers to trade and investment liable to hamper the generation of green energy, for example by prohibiting ‘local content requirements’ and compulsory formation of partnerships with local companies.(378) Likewise, Article 7.5 of the EUSFTA seeks to remove technical barriers to trade in products for the generation of green energy. It is well established that international commitments aimed at ensuring that technical regulations and standards and conformity assessment procedures do not create unnecessary obstacles to international trade fall within the ambit of the common commercial policy.(379) Articles 7.6 and 7.7 of the EUSFTA (concerning, respectively, exceptions and implementation and cooperation) are ancillary to the other commitments resulting from Chapter Seven and are therefore not decisive when ascertaining whether that chapter falls within the common commercial policy.

487.It follows that Chapter Seven aims to regulate and facilitate trade related to the generation of green energy, and thus has direct and immediate effects on trade. That chapter therefore falls entirely within the European Union’s exclusive competence under Article 207(1) TFEU.

488.That conclusion is not called into question by the submission by a Member State that Chapter Seven is liable to undermine the right of each Member State, under the second subparagraph of Article 194(2) TFEU, to determine the conditions for exploiting its energy sources, its choice between different energy sources and the general structure of its energy supply. As is apparent from its wording, the sole purpose of Article 194(2) TFEU is to clarify the scope of the European Union’s competence to adopt legislative acts for the purposes of implementing an energy policy. It cannot therefore limit the autonomous scope of the common commercial policy as laid down in Article 207(1) TFEU.

Trade and sustainable development

489.Some provisions in Chapter Thirteen clearly have a direct and immediate link with the regulation of trade. Thus, Article 13.6.4 of the EUSFTA specifically addresses the issue of disguised restrictions on trade which may result from measures implementing multilateral environmental agreements. Likewise, the purpose of Article 13.12 of the EUSFTA is, in essence, to prevent a Party affecting trade or investment by waiving or otherwise derogating from its environmental and labour laws, or not applying those laws effectively. Other examples are Article 13.11.1 of the EUSFTA, which aims specifically to facilitate and promote trade and investment in environment-friendly goods and services, and Article 13.11.2, whereby the Parties agree to pay special attention to facilitating the removal of obstacles to trade or investment concerning climate-friendly goods and services.

490.However, despite the Parties’ stated intention not to harmonise labour or environmental standards (Article 13.1.4 of the EUSFTA), a significant number of provisions in Chapter Thirteen neither impose a form of trade conditionality (by enabling the other Party to adopt trade sanctions in case of non-compliance or by making a specific trade benefit dependent on compliance with labour and environmental standards) nor otherwise regulate the use of commercial policy instruments as a means to promote sustainable development.

491.Thus, Articles 13.3.1, 13.3.3, 13.4, 13.6.2 and 13.6.3 of the EUSFTA essentially seek to achieve in the European Union and Singapore minimum standards of (respectively) labour protection and environmental protection, in isolation from their possible effects on trade. Those provisions therefore clearly fall outside the common commercial policy. Unlike the ‘essential elements’ clauses found in some EU international trade agreements,(380) which impose an obligation to respect democratic principles and human rights, breach of the labour and environmental standards to which those provisions of the EUSFTA refer does not give the other Party the right to suspend trade benefits resulting from the EUSFTA. Articles 13.16 and 13.17 of the EUSFTA do not authorise a Party to suspend trade concessions granted to the other Party if the latter does not comply with commitments under Chapter Thirteen.(381) Furthermore, unlike the special incentive arrangement for sustainable development and good governance under the so-called GSP+ scheme,(382) those provisions are also not aimed at granting Singapore trade concessions provided it meets those standards.

492.Article 13.8 of the EUSFTA concerns ‘Trade in Fish Products’. I accept that the obligation in Article 13.8(b) to introduce effective measures to combat illegal, unreported and unregulated fishing may result, inter alia, in the adoption of commercial policy instruments or include action aimed at eliminating the use of such instruments (such as subsidies that contribute to overfishing and overcapacity and are linked to illegal, unreported and unregulated fishing). That provision also mentions examples of such measures.

493.By contrast, the other points in Article 13.8 of the EUSFTA aim essentially to contribute to sustainable conservation and management of fish stocks by the Parties. For example, Article 13.8(a) of the EUSFTA requires the Parties, in general terms, to comply with long-term conservation measures and sustainable exploitation of fish stocks as defined in the international instruments that they have ratified and to uphold the principles of the UN Food and Agriculture Organisation and relevant UN instruments relating to these issues. Compliance with those standards is not a prerequisite for obtaining trade benefits. Nor can the infringement of those commitments result in the suspension of trade concessions under the EUSFTA.(383) Article 13.8(c) and (d) of the EUSFTA likewise does not have direct and immediate links with international trade. It therefore does not fall within the common commercial policy.

494.What are the implications for the issue of competence?

495.In my opinion, Articles 3(5) and 21 TEU and Articles 9 and 11 TFEU, to which the Commission refers, are not relevant to resolving the issue of competence. The purpose of those provisions is to require the European Union to contribute to certain objectives in its policies and activities. They cannot affect the scope of the common commercial policy laid down in Article 207 TFEU. For the same reason, it is immaterial whether, as the Commission submits, the fundamental rights to which Article 13.3.3 of the EUSFTA refers are compatible with universal labour standards as protected by the Charter of Fundamental Rights of the European Union. That submission goes to the substantive compatibility of the EUSFTA with fundamental rights. It cannot modify the scope of the European Union’s competence.(384)

496.Nor do I accept the Commission’s submission that, in essence, Articles 13.3.3 and 13.6.2 of the EUSFTA are not ‘sufficiently prescriptive’ to be taken into account when examining the allocation of competence between the European Union and the Member States as regards Chapter Thirteen. The Commission relies here on Case C‑377/12,(385) in which the Court held that the provisions relating to readmission, transport and the environment in the Framework Agreement on Partnership and Cooperation between the European Union and its Member States, of the one part, and the Republic of the Philippines, of the other part,(386) did not ‘contain obligations so extensive that they [could] be considered to constitute objectives distinct from those of development cooperation that are neither secondary nor indirect in relation to the latter objectives’.(387) Since migration, transport and the environment form an integral part of the European Union’s development policy, to require a development cooperation agreement including those matters to be based on parts of the Treaties other than the provision concerning development policy would in practice render devoid of substance the competence and procedure prescribed in that provision.(388) By contrast, neither fundamental rights at work nor standards of environmental protection form an integral part of the common commercial policy. Case C‑377/12 does not therefore assist when examining Chapter Thirteen of the EUSFTA.

497.In my opinion, Chapter Thirteen has four components. The first component comprises the provisions falling under the common commercial policy. The second and third components comprise the provisions concerning, respectively, labour protection standards and environmental protection standards. The fourth component concerns sustainable conservation and management of fish stocks.

498.None of those components can be regarded merely as a necessary adjunct to ensure the effectiveness of the other components of the EUSFTA or of Chapter Thirteen, nor can they be regarded as being extremely limited in scope. In particular, I cannot accept the Commission’s argument that Article 13.6.2 of the EUSFTA (which requires effective implementation of the multilateral environmental agreements to which the European Union and Singapore are party) involves no new international obligation for the Parties. It is true that that provision merely refers to pre-existing multilateral commitments of the Parties concerning environmental protection. However, its effect is to incorporate those commitments into the EUSFTA and therefore make them applicable between the European Union and Singapore on the basis of the EUSFTA. Article 13.6.2 thus clearly results in a new obligation for the Parties, enforceable in accordance with the EUSFTA.

499.It follows that the European Union’s decision to enter into commitments under each of the four components must be founded on a distinct legal basis.

500.As regards the first component, the European Union’s exclusive competence results from Articles 3(1)(e) and 207(1) TFEU. In accordance with Articles 3(1)(d) and 43(2) TFEU,(389) the fourth component falls within the European Union’s exclusive competence over the conservation of marine biological resources under the common fisheries policy.

501.By contrast, the second and third components in principle fall within the shared competence of the European Union.

502.The provisions concerning labour protection standards (second component) can be regarded as necessary in order to achieve the social policy objectives set out in Article 151 TFEU relating to, in particular, those listed in Article 153(1)(a), (b) and (c) TFEU (improvement of the working environment to protect workers’ health and safety; working conditions; and social security and social protection of workers). The European Union therefore has shared competence over that component as a result of Articles 4(2)(b), 151 and 153(1) TFEU and the second ground under Article 216(1) TFEU.

503.As regards the provisions concerning standards of environmental protection (third component), it suffices to note that the European Union is competent, pursuant to Article 191(1) TFEU, to pursue an environmental policy aimed at preserving, protecting and improving the quality of the environment. The European Union’s external competence to pursue environmental policies, which results both from Article 191(4) TFEU(390) and the first ground under Article 216(1) TFEU, is shared with the Member States in accordance with Article 4(2)(e) TFEU.

504.The Commission has not argued that the European Union enjoys exclusive external competence over the second and third components on the basis of Article 3(2) TFEU. It is therefore not for the Court to explore whether the third ground under that provision might conceivably apply to those components.(391)