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    Opinion 2/15: Competence Creep through International Trade?

    By Ian Caswell, on 30 May 2017

    Author: Prof. Dr. Sacha Garben.

    Introduction

    Anxiously anticipated, Opinion 2/15 rendered on May 16th is a treasure trove for EU lawyers. It raises a variety of interesting and important issues, ranging from substantive to constitutional, internal to external, legal to (geo-)political. Other authors will undoubtedly shine their light on Opinion 2/15’s possible implications for any future agreement between the EU and the UK post-Brexit, for other contested ‘new generation trade agreements’ such as CETA and TTIP, the consequences for specific issues of external relations such as foreign investment, and a whole host of other aspects [1]. The present blog post has a narrow focus, examining the Opinion from the perspective of the internal division of competences between the EU and the Member States. It argues that Opinion 2/15 can be seen as an illustration of how competence creep can occur through the EU’s international trade policy in various ways.

    While after many years of scholarly and political discussion there does not seem to be a commonly agreed definition of ‘competence creep’, it can roughly be understood as a process whereby areas of national competence are nevertheless subjected to European integration. On its most restrictive understanding, it only refers to the adoption of ‘indirect’ legislation on the basis of Treaty provisions relating to other areas than the one impacted by the measure, such as the adoption of rules impacting culture or education on the basis of Article 114 TFEU. Most scholars seem to agree, however, that a meaningful explanation of the various ways in which areas of national competence can be Europeanized must also include the impact of CJEU case law on the basis of particularly the free movement and competition law Treaty provisions (negative integration), as well as the various forms of soft law and policy coordination that the Member States engage in (notably European economic governance through the ‘European semester’) both within the EU’s institutional framework and outside (parallel integration) [2]. Opinion 2/15 calls our attention to the fact that competence creep can furthermore occur through (the exercise of the EU’s competence to conclude) international agreements, and particularly the EU’s trade policy.

    Competence creep 1: cross-cutting effects of the CCP on Member States’ retained powers

    Much of the Opinion concerns the interpretation of the EU’s competence in common commercial policy as expanded by the Lisbon Treaty [3]. As several Member States invoked, Article 207(6) TFEU provides that “[t]he exercise of the competences [in CCP] shall not affect the delimitation of competences between the Union and the Member States, and shall not lead to harmonization of legislative or regulatory provisions of the Member States in so far as the Treaties exclude such harmonisation”. This, on the one hand, signals the risk of competence creep through the CCP, but at the same time attempts to neutralize it [4]. It suggests that the powers of the Member States in policy areas or on specific issues where the EU’s internal competence is limited to supporting action (such as the areas listed in Article 6 TFEU) or explicitly excluded in certain matters (such as property ownership under Article 345 TFEU), should not be affected by international agreements concluded on the basis of Article 207 TFEU. But how red is this line, really?

    As AG Sharpton also noted [5], a contextual interpretation – taking account of Article 207 TFEU as a whole – defies a strict understanding of paragraph 6 that would entail that such areas are entirely carved out of the CCP. Paragraph 4 allows the conclusion of agreements “in the field of trade in cultural and audiovisual services”, and “social, education and health service”, even when such agreements can “seriously disturb the national organization of such services and prejudicing the responsibility of Member States to deliver them” (!), although in that latter case unanimity is required [6].

    Furthermore, the whole concept of red lines delineating exclusive Member State competences jars with the way the EU legal order actually functions – although one could be forgiven for initially having a different impression upon reading the Lisbon Treaty with its various statements of the conferral principle and national autonomy clauses, competence categories and prohibitions of harmonization. Despite those seemingly hard lines, the EU remains a system of cooperative, and not dual, federalism, in which there can be cooperation and sharing of certain powers of tasks in virtually all policy areas [7]. The CJEU has consistently adopted a cross-cutting, functional approach maximizing the effet utile of EU law, insisting that while the EU’s direct legislative powers may be limited in certain areas, this does not mean that such areas cannot be affected by indirect legislation or the negative obligations arising from other Treaty provisions.

    This same approach permeates Opinion 2/15. The CJEU considers that the agreement’s provisions on direct investment protection do “not encroach upon the competences of the Member States regarding public order, public security and other public interests, but obliges the Member States to exercise those competences in a manner which does not render the trade commitments […] redundant” [8]. As regards Article 345 TFEU, according to which the Treaties are in no way to prejudice the rules in Member States governing the system of property ownership, the Court similarly concludes that it “does not mean that those rules are not subject to the fundamental rules of the European Union”. The agreement’s provisions on investor protection do not, in the Court’s view, contain any commitment relating to the rules in Member States governing the system of property ownership but only “make any nationalisation or expropriation decisions subject to limits which are intended to guarantee investors that such a decision will be adopted under equitable conditions and in compliance with general principles and fundamental rights, in particular with the principle of non-discrimination” [9]. The first way in which international trade agreements can lead to competence creep is thus that their obligations may very well limit the Member States’ exercise of their ‘retained powers’.

    Competence creep 2: upgrading a power from internally shared to externally exclusive

    The second way in which international trade can lead to competence creep is through the ‘upgrading’ of a power that is shared internally to a power that is exclusive externally, either through its inclusion in the definition of the CCP or on the basis of external exclusivity following Article 3(2) TFEU. Opinion 2/15 also exemplifies this, in that the Court held – contrary to the AG – that while it is true that the EU’s exclusive competence in the CCP “cannot be exercised in order to regulate the levels of social and environmental protection in the Parties’ respective territory” as the “adoption of such rules would fall within the division of competences […] laid down, in particular, in Article 3(1)(d) and (2) and Article 4(2)(b) and (e) TFEU”, the agreement does not “harmonise the labour or environment standards of the Parties”, as it does not “regulate the levels of social and environmental protection in the Parties’ respective territory but to govern trade between the European Union and the Republic of Singapore by making liberalisation of that trade subject to the condition that the Parties comply with their international obligations concerning social protection of workers and environmental protection” [10]. The ‘creeping’ element in these circumstances does not so much lie in the existence of the EU competence, but rather in its transformation into an exclusive EU power on the external level, which excludes the Member States from the negotiation process and limits their power in terms of approval of the agreement, especially where QMV applies.

    Competence creep 3: negative integration on the basis of international trade agreements

    The third, and possibly most powerful way in which international trade agreements can lead to competence creep is through the limitation of national (and possibly even EU) regulatory power in retained areas or those of complementary or shared competence, through obligations on free movement and free investment. While, like EUSFTA, many agreements contain clauses recognizing the Parties’ mutual right to establish their own levels of e.g. environmental and social protection, and to adopt or modify accordingly their relevant laws and policies, the fact remains that such regulation needs to be consistent with their international commitments in those fields and can give rise to significant financial liability even if they would not lead to the direct disapplication of such regulation.

    There is some irony in that the EU itself is an example of this, with its negative integration on the basis of free movement, and that it is also subjected to it on the international level – such as in the context of the WTO. The extent of the competence creep in these cases depends on the interpretation given to the obligations arising from the trade agreement in question, as we have also seen in the EU internal market, and thus much hinges on who gets to make this interpretation. Many fear that dispute settlement independent from national courts will lead to expansive interpretation of the trade obligations, suppressing national regulatory competence. Again ironically, the CJEU itself is an example of this, but it has developed from its humble origins resembling a trade dispute settlement body to the Constitutional Court of our European federal polity, and can arguably be better trusted with the balancing of public and private interests and the contingent federal balance, than a new arbitration body can. In that respect, Opinion 2/15 actually contains (a promise for) some important limitations on competence creep: procedurally, as it limits the EU’s competence to set up such dispute settlement without the involvement of the Member States [11], and possibly also substantively, as it contains some hints that the very compatibility of such mechanism with EU law is in doubt [12] – something a future Opinion should give guidance on.

    Conclusion

    This blog post has outlined how the EU’s conclusion of international agreements can lead to competence creep in various ways. Opinion 2/15 serves well to exemplify this phenomenon in the post-Lisbon legal order. It confirms the validity of competence creep through the cross-cutting effects of the CCP on Member States’ retained powers and (contrary to the AG) allows the upgrading of shared internal competence to exclusive external competence in the context of EUSFTA. However, the Opinion is more restrictive as regards perhaps the most significant form of competence creep, i.e. through negative integration by an independent dispute settlement body. Here, the CJEU requires the involvement of the Member States, and seems to hint at a possible incompatibility of the dispute settlement regime with EU law. For those who consider competence creep problematic, Opinion 2/15 is a bit of a mixed bag, but can generally be welcomed as a positive development.


    Dr Sacha Garben is Professor of EU law at the College of Europe, Bruges and Legal Officer in the European Commission (on leave). The views expressed are entirely personal and do not in any way represent those of the European Commission.

    © 2017, Sacha Garben. This is an Open Access article distributed under the terms of the Creative Commons Attribution License (CC-BY) 4.0 https://creativecommons.org/ licenses/by/4.0/, which permits unrestricted use, distribution, and reproduction in any medium, provided the original author and source are credited.

    Attribution 4.0 International (CC BY 4.0)

     

     


    1. See e.g. L. Ankersmit, Opinion 2/15 and the Future of Mixity and ISDS, http://europeanlawblog.eu/tag/opinion-215/.
    2. On these 5 forms of competence creep, see S. Garben, ‘Restating the Problem of Competence Creep, Tackling Harmonisation by Stealth and Reinstating the Legislator’, in: S. Garben and I. Govaere, The Division of Competences between the EU and the Member States, Reflections on the Past, the Present and the Future (Hart Publishing, 2017), forthcoming.
    3. Meunier has argued that the expansion of the CCP to include direct investment itself constitutes an example of competence creep, see: S. Meunier, Integration by Stealth: How the European Union Gained Competence over Foreign Direct Investment, EUI working Paper RSCAS 2014/66.
    4. We find a similar statement in the flexibility clause Article 352 TFEU post-Lisbon, reflecting that Treaty’s concern about a better delimitation of EU competences and a protection of Member States powers.
    5. Para. 109.
    6. NB: while unanimity may reduce the risk of competence creep actually occurring and provides a measure of indirect democratic legitimacy, it does not preclude it.
    7. See R. Schütze, From Dual to Cooperative Federalism—The Changing Structure of European Law (OUP, 2009).
    8. Para. 103.
    9. Para. 107.
    10. Paras. 164 – 166. Apart from confirming the admissibility of this second way of competence creep, this also sheds some useful light on what the CJEU seems to understand by ‘harmonization’.
    11. Paras. 292 – 304.
    12. Paras. 30, 300 and 301.