EU’s Trade Agreements: a playground for sustainable development

Credit photo: https://unctad.org/fr/node/2839

This research piece was written by Pierfrancesco Maria Lanza. Pierfrancesco Maria Lanza is a current Law student at the “Mediterranea” University of Reggio Calabria. He is particularly focused on International and European Union Law and Relations. Furthermore, his areas of interest include the foreign affairs of the European Union, Russia and the Middle East (mainly the Gulf Cooperation Council’s countries). He is the Vice President of the European Student Think Tank 2021/22.

Acknowledgments

I would like to thank my colleague Marina Navarro Montilla, a special and inspiring person, for her profound belief in my work.

1. Introduction

In 2015, The United Nations proposed a set of 17 Sustainable Development Goals (SDGs) encompassing 169 targets, which formed the Agenda 2030. Agreed by world leaders, it has reinforced the search for sustainable development in economical, environmental and social areas. On it, the SDG Target 17.10 aims to promote “a universal, rules-based, open, transparent, predictable, inclusive, non-discriminatory and equitable multilateral trading system under the World Trade Organization” (WTO) (United Nations, 2015)

It has become clear that sustainable development is a global commitment to which nations must work together. No results will be witnessed in the lack of coordination and therefore, agreements have increasingly focused on promoting social justice, sound environmental standards, respect for labour conditions and human rights. In this search, trade agreements have played a substantial role.

This article examines a theoretical approach of the influence of trade agreements on sustainable development, focusing on the chapters on trade and sustainable development (TSD) included in EU agreements. It reflects on the remaining aspects to achieve an effective impact and showcases the EU trade agreement with South Korea, analysing its strengths and weaknesses, especially regarding labour rights. Lastly, the article points out the possible implications that sustainable development clauses can have on the recent Comprehensive Agreement on Investment (CAI) concluded between the EU and China.

2. Theoretical approach

a. Influencing Sustainable development through trade agreements

Trade policy may influence the affordability and accessibility of crucial goods and services needed for social development (UNCTAD, 2016). In the meantime, it can also have a negative impact on social wellbeing and the environment through biodiversity loss (Lenzen et al., 2012), deforestation or increased exposure to infectious diseases. Free Trade Agreements (FTAs) and trade policy can also impact the deliberate move of emission-intensive industries to countries with lax environmental standards and rules (Yao et al., 2019). Therefore, the incorporation of sustainable development concerns in trade agreements has increasingly gained a central role to influence a change.

Different trading blocs have made progress on sustainability. The implementation of the first FTA TSD provision with the EU has entered now its tenth year. Similarly, the EFTA States actively promote policy coherence in trade policies and relations since 2010. They have systematically included model provisions in their FTAs addressing labour and environmental standards (European Free Trade Association, 2021). Among others, the agreements signed in 2011 with Montenegro, Bosnia and Herzegovina (2013), Georgia (2016), the Philippines (2016), Ecuador (2018) or Indonesia (2018) included a TSD Chapter. Generally, TSD provisions refrain from creating new labour or environmental standards but support the already established ones by international organisations such as the International Labour Organisation, or agreed in Multilateral Environmental Agreements. In the case of EFTA States, concrete assistance is also provided to enhance countries’ fulfilment of the obligations, however, a focus is settled on dialogue instead of sanction-based approaches (European Free Trade Association, 2020). This is also the approach taken by the European Union, in contrast with the United States or Canada.

b. TSD chapters on EU Trade agreements

Trade represents a significant contribution to the economy and the labor market of the EU. More than 30 millions of employments depend on commercial bounds between the Union and the rest of the world and this number is expected to increase within the next years (The Council of the European Union, 2020). Given its importance, trade is considered a centre of interests both by the EU and all its Member States. As a result, trade competences and the capabilities to sign commercial agreements is considered an exclusive competence of the EU, enshrined in the 3rd article of the Treaty on the Functioning of the European Union (TFEU) (The European Union, 2012). Member States cannot sign commercial agreements in sectors that are exclusively reserved for the EU. However, if the treaty includes sectors that are under a shared responsibility, for example, energy, the Union can conclude agreements after the ratification of all the Member States (The European Union, 2012).

The reason behind this is the need to act in the international arena as a unique body instead of endorsing different and unconnected commercial policies to let the EU have a stronger trading position.

It is worth mentioning that the Union aims to promote multilateralism within its commercial policies in order to guarantee the cooperation between its institutions, Member States and non-EU countries. As the largest trading block in the world, the EU’s trade agreements have a pivotal influence on the promotion of sustainable development, namely the respect of “ the needs of the present whilst ensuring future generations can meet their own needs'' (The European Commission, 2020). As a matter of fact, the EU law has required the Union to include TSD Chapters in its commercial treaties in order to push itself and the partner country to respect the four significant pillars when trading. After ratification, another relevant consideration is the long-term engagement set to respect the provisions of the Chapter. Partner countries are primarily incentivised to work with the Union and other national stakeholders to endorse inclusive reforms. In this sense, the EU regularly meets its partners to discuss the implementation of their commitments in government-to-government consultations. Additionally, it involves associations and civil society experts to help in the process, namely the Domestic Advisory Groups. They usually draft reports that neither party can block. In the case of a dispute regarding trading partners’ commitments to the TSD duties, an independent panel of arbitrators can be established. Involving this actors, they will conclude an own observation, that the accused party can then follow. The particularity of this mechanism is that it does not include binding dispute settlement procedures nor economic sanctions. Therefore, pushing the counterpart to comply can be sometimes ineffective. This has come to reality in some cases.

3. Analysis of the South Korean Case

The EU-South Korea FTA which had been applied starting from 2011 and ratified in 2015, represents the first case of a new approach to an Asian partner towards sustainable development. Thus, becoming an emblematic example for future FTAs with other third countries. The agreement has shown a positive impact on the EU-South Korea economic ties. As a matter of fact, EU exports to South Korea reflected an increase of 77% from 2010 to 2018 , allowing EU businesses to save around 2.8 billion euros through the mitigation or the elimination of tariffs (The European Commission, 2020). But the other relevant aspect is that the treaty contains an insightful TSD chapter which reflects the commitment of the two partners. The most important factors of the chapter that need to be respected are the environmental and labour ones. In order to keep the commitment to them much stronger, the chapter includes mechanisms for supervision and consultation, the possibility to submit written requests, an investigatory panel of experts to help to resolve unexpected disputes as well as the inclusion of stakeholders from the civil society to support the processes. Despite all these positive provisions, the system seems to remain inconsistent and a target of those concerns that accuse the enshrined principles to be non-legally binding enough. As a matter of fact, the EU firstly criticized South Korea in 2018 for not having signed four fundamental International Labour Organisation’s (ILO) Conventions implemented to guarantee the freedom of association, and then activated the arbitration procedures against some South Korean behaviours which were considered respectless of the FTA’s obligations. More specifically, the EU assumed that some aspects of the Korean Trade Union Act were regardless of the labour provisions of the treaty. Indeed, the EU disputed the Korean law to prevent the self-employed, dismissed, or unemployed people from the freedom of association. Moreover, in case an organisation allowed non-workers to join them, it could not be considered a trade union anymore. Another disruptive fact was the provision of the elections of trade union officials only through its members. The EU thought that this act would have endangered the transparency of the certification procedures for the establishment of trade unions (Lopich and Schrey, 2020).

It is evident that this situation collided with the rights to free association and to fair work, which are considered fundamental by the EU law and consequently by the TSD chapter of the FTA. Aware of the EU’s concerns, South Korea tried to solve the dispute through the sign of three ILO Conventions, with the exception of that on forced labour, and the proposal of new laws respectful of the ILO standards regarding the freedom of association in 2019. However, the laws had not been endorsed and the mechanism provided by the TSD Chapter legislation was activated. The panel of experts prepared a report with some recommendations in order to let South Korea bridge the gap between its domestic law and the international standards, but the implementation of these guidelines has seemed to be inconsistent. Indeed, as recognised by many analysts, “the government’s policies are also likely to remain oriented towards the interest of large corporations. Although South Korea has high legal standards and strong unions, it currently has no visible interest in complying with multilateral labour conventions. This is also due to a steady opposition of Korean business lobby groups” (Lopich and Schrey, 2020).

Even though the EU has activated the mechanism to enable the compliance to the TSD chapter, so standing for the sustainability when trading, the process has shown its deficiencies linked to the inability to put sanctions, such as the raise of tariffs, in order to provide a more effective compliance to the TSD principles by trading partners. Therefore, it could be preferable a more committed activism of the Union, even though it can be still recognised as a great promoter of sustainability. Achieving a legal-bindingness of the treaties to be guaranteed by a specific already existent international organisation’s jurisdiction can be a solution, yet still very broad due to a common reluctance of States to give more jurisdictional competences to sovra-national institutions. Therefore, providing more soft reactions, related for example to custom duties increases, may be the right thing to do in the short term. This can be a ground to be explored when it will come to sign new trade agreements, committed to sustainability, with new countries.

4. Implications within the EU-China CAI

The recent CAI, concluded in principle in December 2020 by the EU and China, offers a different point of view from the EU-South Korea FTA. The CAI refers only to investment aspects, rather than trade also. The two actors committed to reciprocally open their internal markets to respective investors. China also committed to ensure fair treatment for EU companies when compared to state owned enterprises, including transparency of subsidies and rules against the forced transfer of technologies (The European Commission, 2020). However, it has been observed that the Chinese market still remains more closed than the EU’s one, therefore a first lack of the principle of reciprocity can be considered (Garcia-Herrero, 2021). But apart from this, the treaty also includes clauses related to sustainability, climate change and labour rights. However, issues arise, in a sustainable development’s optic. Mainly regarding the labour rights. In fact, despite the Chinese commitment to the ratification of the two ILO fundamental Conventions on forced labor, accusations of forced labor in the region of Xinjiang have been raised. Moreover, in the CAI there is not mentioned any deadline for the ratification of these Conventions. As a result, given the system of dispute settlement that almost reproduces the one from the TSD chapters, “those provisions remain general and contain limited enforcement possibilities” (Garcia-Herrero, 2021). Hence risking the agreement to become unfair in regards to the EU if issues on significant actions required to China arise.

5. Conclusion

As shown by this paper, the introduction of TSD chapters inside trade agreements represents the right approach to social and economic development. It can be considered a significant action according to the EU values and perspectives. Moreover, TSD chapters can be very helpful for South Korea, China and other third countries in order to help them to achieve the international standards that these kinds of chapters aim to respect. However, it seems that sustainable development deserves a further and more committed implementation, that only a more incisive reform of the EU mechanisms can achieve.

References