After having defended a sustainable development approach to trade based on cooperation and dialogue for the past decade, the European Union (EU) announced in June 2022 its intention to tighten its approach. The recent Communication “The power of trade partnership: together for green and just economic growth” presents the EU’s new strategy, which, among other measures, plans to extend the general state to state dispute settlement mechanism to the TSD chapter and to include the possibility of trade sanctions for non-compliance with certain provisions of the TSD chapter. These new measures have been adopted in response to a long-lasting observation that the current system does not enable a full and satisfying implementation and enforcement of sustainability provisions.

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Using FTAs to achieve sustainable development

The EU affirmed on different occasions its intention to use trade policy as a tool to meet the 2030 Sustainable Development Goals (SDGs). In 2018, the European Economic and Social Committee stated that “TSD chapters play a crucial role in achieving (…) values similar to those that we recognise as “EU values”, including social, consumer and environmental standards and cultural diversity, and to make the public face of the EU visible in those countries, as well as providing an important platform to monitor commitments to human, labour and environmental rights in trade agreements”. 

Since the adoption of the Treaty of Lisbon, which requires the common trade policy to be guided by the core values of the EU, including Sustainable Development (art. 11 and art. 205 TFEU), the EU consistently includes sustainability provisions within its new bilateral trade agreements. These “new generation” free trade agreements (FTAs) all include a specific Trade and Sustainable Development (TSD) chapter, which is based on three pillars: binding commitments in terms of labour and environmental standards, structures to involve civil society organisations, and a dedicated dispute settlement mechanism. 

Indeed, the European Union opted for an enforcement and implementation model based on dialogue, cooperation and monitoring. The violation of TSD chapters is not subject to sanctions or to the general dispute settlement mechanism, such that non-compliance is not linked to economic consequences. In case of disagreement, the Parties must find a mutually satisfactory solution in the context of governmental consultations. If this collaborative mechanism is not sufficient to solve the issue at stake, both Parties can refer the matter to the Committee on Trade and Sustainable Development, and, subsequently to the Panel of Experts, which will issue public reports and make recommendations on the matter.

Criticism of the EU’s approach

The EU’s “soft approach” often draws criticism, and EU sustainability provisions are seen by many as lacking effectiveness due to their weak enforcement. In a 2018 ‘non-paper’ the European Commission’s services recognised that the implementation of the TSD Chapters should be improved and dressed a list of 15 “concrete and practicable” actions – divided under four broad headings (Working together; Enabling Civil Society, including social partners, to play a greater role in implementation; Delivering; Transparency and Communication) – to reinforce collaboration with partner-countries, and to enable civil society to play their role in the implementation process. A EUR 3 million project to support civil society participation was launched as a result of this report, which also suggested extending the scope of civil society participation to the whole FTA in future agreements. However, the report concluded that “the absence of consensus on a sanctions-based model makes it impossible to move to such an approach”. 

Despite having affirmed in 2018 that the adoption of sanctions was not a realistic strategy, the European Commission reconsidered its position in its 2022 Communication “The power of trade partnership: together for green and just economic growth”. Among other measures, the Commission suggests extending the general state to state dispute settlement mechanism to the TSD chapter. It also commits to including an option of applying trade sanctions if Parties fail to comply with core provisions of the ILO or implement the Paris Agreement.  

This new development is particularly interesting in the current circumstances. While trade is increasingly seen as a tool to foster sustainable development in a context of climate crisis and environmental degradation, a growing consensus shows that the EU’s current approach does not prove effective in reaching its objectives. The 2022 action-plan is the result of a public consultation, which showed that most stakeholders were unsatisfied with the implementation and enforcement of TSD chapters, and that most NGOs and trade unions, a minority of business associations, and half of public authorities who responded to the survey supported trade sanctions.  

What will the reform proposals mean in practice?

The use of sanctions and the extension of the general dispute settlement mechanism to TSD chapters should not be overstated, for two reasons. First, experience shows that event though sanctions constitute an interesting leverage tool, they are rarely used, even when they are provided for by a free trade agreement. For example, in the US, which famously requires FTA partners to agree ‘non-regression’ commitments to enforce enviromental laws which are tied to sanctions, only one such dispute has taken place, on labour standards. 

Second, the new EU action-plan, which “complement[s] and expand[s] the action areas identified in the [2018] 15 Point Action Plan”, is based on six priority areas: the need to be more proactive in the cooperation with partners, stepping up the country specific approach, mainstreaming sustainability beyond the TSD chapter of trade agreements, increasing the monitoring of the implementation of TSD commitments, reinforcing the role of civil society and enhancing enforcement by means of trade sanctions as a measure of last resort. As a result, the EU’s approach will remain decisively based on cooperation and dialogue, and sanctions will only be complementary, as advocated by most commentators.

The fact that the EU has recognized the shortcomings of its cooperative approach is positive. The proposed reforms clearly respond to concerns raised by stakeholders about the fact that cooperation mechanisms have sometimes felt like an afterthought – or not responded effectively to the specific issues with labour and environmental standards in a particular national context. As part of our Trade4SD project, THE ROLE OF WTO, AND EU BILATERAL AND REGIONAL TRADE AGREEMENT TO MEET SDGS: GAPS AND BEST PRACTICES, we will examine the practical implication of EU FTA provisions on sustainability by interviewing key stakeholders in VietNam, Ghana and Tunisia. In so doing we will help build an an evidence base for understanding and improving how sustainability issues resulting from FTAs are identified, how they are responded to through specific FTA obligations, and, crucially, how these obligations are actually implemented in practice. We hope that this research can inform an approach to trade and sustainable development that is responsive and effective.