Free Trade Agreements: Anchor Sustainability in Trade Agreements

© Fotolia/Edhar

Effective sustainability chapters are not yet a common standard in today’s trade agreements. Negotiating partners often take a sceptical view of sustainability clauses, or even treat them as trade barriers. The European Union and the United States, on the other hand, remain committed to raising international social and environmental standards through their free trade agreements. German industry welcomes binding rules to promote sustainability.

Under the EU’s Lisbon Treaty, the economic, social, and environmental dimensions of sustainability must be respected in all policy areas. These include foreign policy as well as international trade agreements. EU trade agreements therefore bind the treaty partners to honour international obligations such as those resulting from ILO standards and UN environmental agreements. At the same time, trade in environmental technologies and services can be promoted. Thus, trade agreements can have a very positive impact on sustainability.

Free trade agreements strengthen social and environmental protection

Before negotiating any free trade agreement, the EU prepares research-based analyses on the impact on sustainability. The EU’s latest agreements (with South Korea, Central America, Colombia/Peru, Singapore, Vietnam, Canada etc.) explicitly prohibit social and environmental dumping (for example by undercutting labour standards or environmental regulations) and contain dedicated chapters on sustainability issues. In some cases, they include specific regulations for example on prudent use of natural resources such as fishery stocks and timber, on anti-corruption, and on corporate social responsibility. Effective long-term implementation is monitored by bilateral committees and advisory groups including civil society representatives. In cases of disagreement special dispute resolution processes come into play.

EU’s sustainability approach under scrutiny

European industry fundamentally supports the inclusion of these clauses in free trade agreements and participates actively in the advisory groups. In fact, German industry depends heavily on exporting advanced, high-value sustainable technologies. But some negotiating partners such as India still reject sustainability chapters, fearing “green protectionism”, paternalism, and lack of reciprocity. The possibility of enforcing environmental and labour standards through economic sanctions is seen particularly critically. Nonetheless, the European Union and the United States have succeeded in establishing high social and environmental standards even in free trade agreements with developing countries and emerging economies. For example, all twelve signatories of the Trans-Pacific Partnership (TPP) – including Malaysia, Mexico, Peru, and Vietnam – agreed to enforce laws on minimum wages, working hours, and health and safety.

US free trade agreements such as TPP include the possibility of withdrawing trade preferences and imposing fines if one side persistently violates the sustainability rules. The sustainability chapters are subject to the same dispute resolution procedures as the other parts of the agreement. The EU, on the other hand, has to date pursued a different approach, relying on political pressure and public “naming and shaming” as means of last resort, rather than economic sanctions. In its newest trade strategy from late 2015 (Trade for All) the EU again strengthens its focus on questions of sustainability. Trade agreements and preference systems are to play an even more central role in promoting European values such as labour and environmental standards, human rights, fair and ethical trade, and anti-corruption.