VU Phuong Mai, VU Nguyen Hoai Anh & NGUYEN Chau Giang

Abstract

Under challenging socio-economic global issues, it is an urgent need to incorporate rules governing corporate social responsibility (CSR) in Free Trade Agreements (FTAs) to promote the development of sustainable trade worldwide. The embedment of CSR in trade agreements could bring up broad discussion of: (1) whether it should establish a binding legal commitment for the Parties; (2) which legal instruments are incorporated; (3) how CSR clauses may influence multilateral trade systems by being included in FTAs. However, as the biggest intergovernmental organization to regulate and facilitate international trade, the World Trade Organization (WTO) has no clear mandate to promote any global CSR agenda. The preamble to the WTO Agreement only generally refers to the importance of promoting sustainable development and the preservation of the environment. In the Doha round, the WTO members only had negotiations on bringing multilateral environmental agreements (MEAs) into the trading system but did not yet introduced broader policies on ethical/human rights responsibility, philanthropic responsibility, and economic responsibility. Therefore, with the growth of CSR regulations being included in many FTAs, the authors will assess the possibility that the WTO will incorporate CSRs into binding rules for its members in multilateral trade agreements with experiences learned from these FTAs. Then, the author will provide assessments of both the positive and negative effects of CSRs to see whether these rules will promote or cause constraints that hinder the multilateral trading system in the world.

Keywords: Corporate Social Responsibility, Free Trade Agreement, World Trade Organization.

Résumé

Face aux défis socio-économiques mondiaux, il est urgent d’incorporer des règles régissant la responsabilité sociale des entreprises (RSE) dans les accords de libre-échange (ALE) afin de promouvoir le développement d’un commerce durable à l’échelle mondiale. L’intégration de la RSE dans les accords commerciaux pourrait susciter un large débat sur : (1) la question de savoir si elle devrait établir un engagement juridique contraignant pour les parties ; (2) quels instruments juridiques sont incorporés ; (3) comment les clauses de RSE peuvent influencer les systèmes commerciaux multilatéraux en étant incluses dans les ALE. Cependant, en tant que plus grande organisation intergouvernementale chargée de réglementer et de faciliter le commerce international, l’Organisation mondiale du commerce (OMC) n’a pas de mandat clair pour promouvoir un programme mondial de RSE. Le préambule de l’accord de l’OMC ne fait référence que de manière générale à l’importance de promouvoir le développement durable et la préservation de l’environnement. Lors du cycle de Doha, les membres de l’OMC n’ont mené que des négociations sur l’intégration des accords environnementaux multilatéraux (AEM) dans le système commercial, mais n’ont pas encore introduit de politiques plus larges en matière de responsabilité éthique et en matière de droits de l’homme, de responsabilité philanthropique et de responsabilité économique. Par conséquent, avec la croissance des réglementations RSE incluses dans de nombreux ALE, les auteurs évalueront la possibilité que l’OMC intègre les RSE dans des règles contraignantes pour ses membres dans les accords commerciaux multilatéraux en s’appuyant sur les expériences tirées de ces ALE. Ensuite, l’auteur évaluera les effets positifs et négatifs des RSE pour voir si ces règles favorisent ou entraîneront des contraintes qui entravent le système commercial multilatéral dans le monde.

Mots–clés : responsabilité sociale des entreprises, accord de libre-échange, Organisation mondiale du commerce.

   

Since global trade continues to expand and the world now faces complex challenges such as climate change, poverty, and inequality, Corporate Social Responsibility (CSR) has been playing an increasingly important role in promoting sustainable development.

The term CSR was first used by H.R.Bowen in the book Social Responsibility of the Businessmen in 1953 to call on businessmen not to harm the rights and interests of others and shareholders and they should conduct charitable activities to compensate for the damage businesses cause to society.^[1] Driven by society’s ever-changing expectations at a given point in time, CSR is considered a moving target, constantly adapting to the economic, legal, ethical, and discretionary or philanthropic expectations of society.^[2]

While pinpointing a universally accepted definition of CSR remains elusive, it generally demands companies to operate beyond the bare minimum of legal compliance. As referred to by the United Nations Global Compact, CSR goes beyond minimum legal requirements regulating the behaviors of private entities in trade or investment activity. This expanded scope recognizes the legitimate interests of a diverse set of stakeholders, including civil society groups, consumers, employees, governmental entities, international organizations, media outlets, suppliers, trade unions, trustees, and future generations.^[3]

In today’s world, CSR will no longer be an optional add-on for businesses. It is becoming an essential component of long-term success and societal responsibility in many Free Trade Agreements (FTAs) which are international agreements between two or more countries to reduce barriers to trade among them. FTAs often includes clauses on trade facilitation and rule-making in areas such as trading goods and services, investment, intellectual property, government procurement, technical standards and sanitary and phytosanitary issues. Under an FTA, goods and services can be bought and sold across international borders with little or no government tariffs, quotas, subsidies, or prohibitions to inhibit their exchange.^[4] The number of these agreements has increased dramatically (see Figure 1) and there are 364 RTAs in force under Database of World Trade Organization until March 1, 2024.^[5]

Figure 1: RTAs in force from 1948 – 2024

Source: WTO RTA Database.

Traditionally, CSR is typically divided into four key areas: environmental responsibility, philanthropic responsibility, ethical responsibility, and economic responsibility ;^[6] however, based on Tripple Bottem Line (TBL) Approach^[7]—a framework for assessing and reporting corporate performance across economic, social, and environmental dimensions—the United Nations Industrial Development Organization (UNIDO) identifies some key elements of CSRs, such as environmental management, eco-efficiency, responsible sourcing, stakeholder engagement, labour standards and working conditions, employee and community relations, social equity, gender balance, human rights, good governance, and anti-corruption measures.^[8] These elements are gradually reflected in FTAs and environment and labour issues have been first mentioned in The North American Free Trade Agreement (NAFTA) signed in 1992 between Canada, Mexico and the United States.^[9] Since then, a number of countries and organizations have included environmental commitments and labour-related issues in trade agreements,^[10] such as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), the Comprehensive Economic and Trade Agreement (CETA), or the EU-Vietnam Free Trade Agreement, to name but a few.^[11] But not restricted to labour standards and environmental protection, CSR has a very broad interpretation. As its definition has not yet been determined officially for global application, CSR provisions in FTAs generallly refer to clauses that encourage or obligate companies to adhere to a variety of socially responsible practices (see Figure 2). This integration under CSR will align businesses with the TBL approach—while reflecting ethical responsibilities by ensuring that businesses are accountable not only to shareholders and profits but also to employees, communities, and future generations.

Figure 2: RTAs cover different dimensions of CSR (recorded to 2021)^[12]

This increasing incorporation of CSRs regulations in many bilateral and regional trade agreements has set many entities under strict regulations, thus raising many concerns, particularly on its legal commitment and legal instruments being applied. If CSR provisions are not well incorporated, FTAs can lack transparency and accountability mechanisms for enforcing CSR standards. Therefore, a thorough research of this issue can help identify effective mechanisms for monitoring and enforcing CSR provisions.^[13]

Moreover, in an interconnected today’s world, its potential negative impacts on social and environmental well-being are worth considering as integrating CSR into FTAs can have two-sided impacts on trade flows, investment patterns, and consumer behaviour. In a broader view, without strong CSR provisions, FTAs can disadvantage companies operating in countries with higher social and environmental standards. Therefore, researching the incorporation of CSR in FTAs and its impacts on trade is important to upgrade its efficiency and address these concerns while still leveling the fair playing field and promoting sustainable economic growth.

Therefore, the article will provide an overview of the basic content of CSRs, the problems when incorporating CSR into FTAs, and the positive impact of CSRs on the multilateral trade system. In addition, the article will expand the research by evaluating the possibility that the WTO will incorporate CSRs as clearly separate and binding rules for its members in multilateral trade agreements. At the same time, the authors will rely on the current status of implementation of CSR provisions in FTAs to draw suggestions for the WTO.

1. Current Status of CSR Regulation in Free Trade Agreements

The current status of CSR regulations within FTAs reflects a growing trend of integrating responsible business practices into international trade frameworks. Many modern FTAs now include provisions that promote CSRs, encouraging businesses to comply with significant standards related to labor rights, environmental protection, and ethical governance.^[14] These regulations signal an evolution towards sustainability yet bring about specific challenges.

1.1. Evolution of CSR Clauses in Free Trade Agreements

The inclusion of CSR clauses in trade agreements is in an embryonic state. This suggests that while the vast majority of agreements do not refer to CSR, the number of trade agreements including CSR language in their provisions is increasing.^[15]

The reference to CSR in trade agreements extends back to 2003 with the appearance of the Joint Declaration concerning Guidelines to Investors, developed parallel to the EU-Chile Association Agreement (2003), the US-Chile Trade Agreement (2004), the EU-Cariforum Economic Partnership Agreement (2008), and the Canada-Peru Trade Agreement (2009). However, the increased emphasis on CSR clauses in international trade and investment agreements started in 2010 under the call of the European Parliament for the systematic integration of CSR clauses in all future international trade agreements in the Resolution of 25 November 2010 on Corporate Social Responsibility in International Trade Agreements 2009/2201(INI). By December 2020, over 65 trade agreements include at least one provision mentioning explicitly CSR, not to mention trade agreements that include references to CSR such as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and the EU-Vietnam Free Trade Agreement (EVFTA).^[16]

In terms of ways of incorporation, some trade agreements refer increasingly to CSR in the preamble, which is the case for EFTA and Canada. For instance, the Canada–European Union Comprehensive Economic and Trade Agreement (CETA) preamble states the parties “Encourage enterprises operating within their territory or subject to their jurisdiction to respect internationally recognized standards and principles of corporate social responsibility, notably the OECD Guidelines and to pursue best practices of responsible business conduct.” Several other references to CSR are made throughout the text of trade agreements. These include Article 810 of the Canada‑Peru Free Trade Agreement (CPFTA),^[17] Article 16 of the Canada-Chile Free Trade Agreement (CCFTA),^[18] Article 18 of the ASEAN Comprehensive Economic Partnership Agreement (CEPA),^[19] etc.

A limited number of trade agreements even refer to existing CSR instruments such as the OECD Guidelines, or the UN Global Compact, which is the case for the EU and EFTA. The EFTA‑Montenegro agreement (2012) exemplifies this in the preamble:

importance of good corporate governance and corporate social responsibility for sustainable development, and affirms their aim to encourage enterprises to observe internationally recognized guidelines and principles in this respect, such as the OECD Guidelines for Multinational Enterprises, the OECD Principles of Corporate Governance and the UN Global Compact.

When taking a closer look at these CSR clauses, the signing parties typically use “double soft” references, understood as soft language^[20] in terms of states’ commitment with regard to supporting purely voluntary CSR engagement of the private sector.^[21] This is understandable considering that since multinational corporations and enterprises are yet to be recognized as full subjects of international law and holders of human rights obligations, the CSR-related obligations under FTAs are attributed to the States.^[22]

The States’ CSR commitments in trade agreements typically include (i) cooperation activities on CSR, (ii) encouraging enterprises to voluntarily incorporate CSR mechanisms or (iii) facilitating and promoting trade in goods that are subject to CSR schemes. The labor chapter of the US-Peru FTA (2009) mentions the first commitment, as follows: “[…] regional cooperation activities on labor issues, may include, but need not be limited to … dissemination of information and promotion of best labor practices, including corporate social responsibility, that enhance competitiveness and worker welfare” (Annex 17.6, Article 2(o)). The second commitment to encourage voluntary incorporation and observation of CSR mechanisms among enterprises is referred to in the preamble of the EFTA-Montenegro agreement.^[23] Finally, an illustration of the third commitment can be found in the EU-South Korea FTA (2011), as follows: “The Parties shall strive to facilitate and promote trade in goods that contribute to sustainable development, including goods that are the subject of schemes such as fair and ethical trade and those involving corporate social responsibility and accountability” (Article 13.6(2)).

Vietnam has become a signatory to several FTAs with robust CSR clauses. Two notable examples are the CPTPP and the EVFTA. Articles 19.7^[24] and 20.10^[25] of the CPTPP encourages businesses to voluntarily adopt CSR initiatives related to labor and environment, aligning with internationally recognized standards. Similarly, Articles 13.10^[26] and 13.14^[27] of the EVFTA promotes CSR through information sharing, education, and technical advice, referencing international instruments like the OECD Guidelines and the UN Global Compact. These clauses underscore Vietnam’s commitment to responsible trade practices, fostering ethical labor conditions and environmental sustainability within its borders.

In conclusion, while still in an early stage, CSR integration in FTAs is gaining traction. However, it is open to question how these principles and instruments should be incorporated and reflected in trade and investment agreements and whether such inclusion is an effective means of promoting CSR.

1.2. Challenges of Incorporating CSR Clauses in Free Trade Agreements

Although it is accepted that CSR clauses move beyond the traditional focus on shareholder value to embrace a multi-stakeholder perspective, the definition of CSR has not yet been given officially for global application. The reflection of CSR in several FTAs also mostly depends on focused dialogues between trade partners as each country, based on its current social situations, has its own priority in implementing sustainable objectives.^[28] Therefore, it is worth considering the challenges in the embedment of trade agreements.

First, it is necessary to and whether CSR should become a binding legal commitment for the Parties. The scope of CSR remains unclear in various FTAs. While some specify “within their territory and under their jurisdiction” and provisions limit the scope of the commitment on the territory of the State, others omit such details. This vagueness may leave a margin for the extraterritorial application of CSR for States to potentially influence multinational corporations operating via overseas subsidiaries.^[29]

Moreover, Article 9.17 of Canada-Panama FTA about CSR, which still limits the scope of CSR as a voluntary effort of signatories in a trade agreement, particularly states that:

Each Party should encourage enterprises operating within its territory or subject to its jurisdiction to voluntarily incorporate internationally recognized standards of corporate social responsibility in their internal policies, such as those statements of principle that have been endorsed or are supported by the Parties.

This expression still exists in many agreements such as the Canada–Colombia FTA, Article 816, or Canada–Benin Agreement for the Promotion and Reciprocal Protection of Investments, Article 16.

Instead, to ensure broad compliance, CSR can be framed with “shall” as a more compulsory obligation. As an illustration, the Canada–Côte d’Ivoire Agreement (2015) states that the Parties “shall encourage” their companies to adopt CSR instruments in Article 15 (2).^[30]

Each Party shall encourage enterprises operating within its territory or subject to its jurisdiction to voluntarily incorporate internationally recognized standards of corporate social responsibility in their practices and internal policies, such as statements of principle that have been endorsed or are supported by the Parties.

In addition, in the EU-CARIFORUM Agreement, Article 72 mentions that the EC Party and the Signatory CARIFORUM States shall cooperate and take, within their own respective territories, such measures as may be necessary, inter alia, through domestic legislation, to ensure that “(b) Investors act in accordance with core labor standards as required by the International Labour Organization (ILO) Declaration on Fundamental Principles and Rights at Work, 1998, to which the EC Party and the Signatory CARIFORUM States are parties.”^[31]

Unlike provisions with potential extraterritorial reach, this clause demonstrates a firm commitment within national borders. States Parties agree to actively (“shall cooperate and take”) apply stronger measures (“necessary”) to enforce CSR rules within their territories.

Therefore, it is needed to upgrade CSR instruments so as to meet the requirements of language used so that CSR clauses could become a compulsory responsibility (for instance, using “shall” instead of “should” or “encourage”).

Second, the scope of CSR provisions is not universally determined and brings up board discussion since in some agreements the provision refers specifically to the promotion of CSR related to the environment, labour or sustainable development. But some other provisions contain a general reference to “internationally recognized standards” or refer explicitly to the promotion of internationally recognised standards, guidelines and principles of CSR endorsed or supported by one or both parties. In the long term, without proper incorporation, this inconsistency will create uncertainty and confusion when it comes to implementation and compliance, thus making companies and governments struggle to interpret their obligations.

For example, Article 9.17 of Canada-Panama FTA identifies CSR principles vaguely as it will “address issues such as labor, the environment, human rights, community relations and anti-corruption”. Yet, in the EFTA-Montenegro FTA, preamble, paragraph 11, CSR is defined in a clearer way as followed:

ACKNOWLEDGING the importance of good corporate governance and corporate social responsibility for sustainable development, and affirming their aim to encourage enterprises to observe internationally recognised guidelines and principles in this respect, such as the OECD Guidelines for Multinational Enterprises, the OECD Principles of Corporate Governance and the UN Global Compact.

Therefore, a general reference to “internationally recognized standards” should be transformed into a precise reference. FTAs should avoid vague references and instead provide a clearly outlined framework specifying the exact scope and fields covered. Additionally, these agreements should refer precisely to established guiding documents, such as the OECD Guidelines for Multinational Enterprises, the OECD Principles of Corporate Governance, the UN Global Compact, the UN Guiding Principles on Business and Human Rights, the ISO 26000 guidelines or the ILO Tripartite Declaration of Principles concerning Multinational Enterprises and Social Policy.^[32] In this way, this approach would ensure that CSR commitments in FTAs are more actionable and enforceable.

Third, governmental support is a key factor in ensuring the application of CSR in FTAs in force. The largest initiative was recorded in 2000 as the UN Global Compact launched the effort to advance CSR in global business to integrate labor rights, environmental sustainability, and other CSR principles into the practices of multinational corporations. However, the UN Global Compact’s voluntary norms faced a critical lack of government support.^[33] This stemmed from a perceived conflict of interest because a multilateral framework and mechanism is not always effective in balancing the interests of many signatories, especially when there might be development gaps between different levels of economies. In addition, regarding governments prioritizing corporate well-being, stricter implementation of CSR regulations might be a barrier that creates hesitation and deters business trade and investment.

Moreover, it is essential to ensure that incorporating CSR standards addresses foundational concerns relating to consistency, participation, and transparency within arbitral practice. For example, by improving a systematic and transparent framework, CSR disclosures can improve firm access to external finance needed to invest in profitable projects in markets where severe information asymmetry and agency conflicts.^[34] Therefore, the role of the government in implementing the regulations and putting them into force is important to guarantee the effectiveness of CSR.

2. Incorporating Corporate Social Responsibility into the World Trade Organization Agreements

As the largest intergovernmental economic organization, the World Trade Organization (WTO) plays a pivotal role in shaping global trade policies. Given its significant influence and diverse membership, exploring the intentions and challenges of incorporating CSR provisions into WTO trade agreements is crucial. This part will provide some thoughts on how the inclusion of CSR provisions in WTO agreements can affect international trade practices in general and the operations of this organization in particular.

2.1. Current Status of the CSR Discussions within the WTO

WTO was established with the overall objective of dealing with the global rules of trade. This statement also means that the WTO’s main function is “to ensure that trade flows as smoothly as possible, predictably and freely as possible”^[35] and thus, CSR is not a direct function of this organization. However, global trade has a strong impact on society as a whole and thus, there is therefore a rising concern of the WTO towards CSR-related matters, which is primarily reflected indirectly in some of its multilateral agreements.

WTO has never referred to CSR matters in both direct and indirect ways. In practice, WTO only has paid attention to several matters such as labor, environment, society… (which are, to some extent, related to the scope of CSR) in a small number of multilateral agreements negotiated within its framework, for example, Article XX – General Exception of the General Agreement on Tariffs and Trade (GATT 1994). This article sets out a number of specific situations in which member states are exempt from GATT trading regulations. Some of these situations are in some way connected to CSR, such as protecting public morals; protecting the life and health of humans, animals, and plants; environmental issues, especially “the conservation of exhaustible natural resources”; and other matters relating to the products of prison labor. Allowing member states to invoke one of the aforementioned exceptions to exclude GATT provisions demonstrates the intention of WTO to encourage and promote member states acting in accordance with the common interests of the community. Indeed, the goal of sustainable development, effective resources use, environmental protection and preservation along with global trade development has long been a fundamental of WTO.^[36] Therefore, the inclusion of an exception provision for members who adopt and enforce particular measures to safeguard natural resources at risk of depletion, once again shows the WTO’s recognition of the strong linkage between global trade and environmental policies. However, the above provisions are only recommended in the sense that they empower member states to establish measures related to certain corporate social responsibilities, even if these measures may violate one or more of GATT’s principles. At the same time, according to the Preamble of GATT, it is stated that the key objective of this multilateral agreement is to promote global trade by reducing or eliminating tariffs and other trading barriers. In general, CSR has never been referred to in WTO’s multilateral trade agreements. The above-mentioned matters expressed through the General Exception clause only reflect the responsibility and concern of the WTO for the environmental and social protection. And WTO members are inclined to sign separate agreements on social responsibility (mainly about environmental issues) and global trade, such as the Agreement on Sanitary and Phytosanitary Measures (SPS), rather than merging CSR in any existing multilateral trade agreements.

During the Doha Round, which has taken place since 2001, the relationship between environmental and global trade was negotiated by WTO members as a crucial and specific part of the agenda. The negotiations focused solely on 3 main topics: (1) harmonization of the relationship between WTO’s trading regulations and multilateral environmental agreements (MEAs), especially MEAs containing provisions which can create trading barriers; (2) coordination of activities between MEAs Secretariat and WTO Committee; (3) elimination of tariff and non-tariff barriers for environmental goods and services.^[37] Nevertheless, discussions only revolved around determining the ability to adhere to WTO’s trading regulations of members that are the signing parties of MEAs, which include some provisions contradicting or violating WTO’s agreements. Additionally, the Doha Round failed in its final negotiating session in November of 2011 and therefore, there is no new agreement adopted between WTO members.

Overall, it can be argued that WTO has paid certain attention to CSR-related issues, especially environmental protection issues. However, no multilateral agreements that incorporate CSR-related provisions have been approved and enforced within this global trading organization so far.

2.2. Impacts of Corporate Social Responsibility Regulations in Free Trade Agreements on International Trade

The inclusion of Corporate Social Responsibility (CSR) provisions in Free Trade Agreements (FTAs) has become increasingly common in recent years. While these provisions aim to promote responsible business practices and address social and environmental concerns, they can also have significant implications for international trade. This section will explore both the negative and positive impacts of CSR regulations in FTAs.

2.2.1. Negative Impacts of Corporate Social Responsibility Regulations in Free Trade Agreements on International Trade

The Court of Justice of the EU (CJEU) has ruled in past cases (e.g., EU-Singapore FTA) that certain provisions in FTAs, such as those on non-direct foreign investments and investor-state dispute settlement mechanisms, can transform the agreements into mixed agreements under EU law. The inclusion of CSR clauses could potentially have a similar effect, altering the trade nature of FTAs and requiring their ratification under both EU and national procedures. As countries continue to explore various approaches to integrate responsible business practices into international trade, the legal and practical issues surrounding mixed agreements and the nature of FTAs will likely continue to be open to interpretation.

The proliferation of mixed FTAs with diverse CSR provisions could further fragment the global trading system, creating a complex web of overlapping and potentially conflicting regulations. The EU often incorporates references to international instruments like the OECD Guidelines for Multinational Enterprises and the UN Global Compact, which address a wider range of CSR issues beyond environment and labor. These instruments address a wider range of CSR issues beyond just environment and labor, such as human rights, corporate governance, and consumer protection. Additionally, EU FTAs also commonly refer to the ILO’s Conventions, which establish a comprehensive set of international labor standards. On the other hand, FTAs signed by Asian countries have diverse focuses, such as the Japan-Viet Nam Economic Partnership Agreement (VJEPA) focusing on good governance as stated in preamble: “Emphasizing the importance of good governance to ensure a predictable and transparent legal and regulatory framework for trade and investment […]” and others such as CPTPP addressing more issues such as labor (Article 19.2(1)), environmental stewardship (Article 20.5), corporate governance (Article 26.3). This lack of harmonization can fragment the global trading system, creating a complex and challenging environment for businesses operating in multiple markets, requiring them to navigate a diverse and often overlapping set of regulations. Each market requires enterprises to adapt their business practices differently, making it a complex and time-consuming process to understand all the specific requirements. The fragmentation caused by diverging CSR standards can further erode trust and cooperation between trading partners. When businesses and countries lack clarity and certainty about regulations in different markets, it can lead to disputes, protectionist measures, and diminished collaboration. This can weaken the overall predictability and stability of the multilateral trade system, hindering its effectiveness in promoting sustainable and inclusive trade practices.

In addition to the inconsistencies in focus and emphasis, FTAs often lack strong enforcement mechanisms for CSR provisions. While some FTAs, like the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), have strong dispute settlement mechanisms, other FTAs among multiple signing parties may rely more heavily on dialogue and cooperation. On the other hand, bilateral FTAs utilize a wide range of enforcement methods from consultations and dispute settlement to voluntary initiatives. To exemplify, the EU and Chile established a multi-stakeholder forum where government officials, businesses, and civil society organizations can discuss and collaborate on implementing CSR principles under the EU-Chile Comprehensive Trade Agreement. The aforementioned inconsistencies in enforcement mechanisms across agreements might worsen the uneven playing fields for businesses operating in different markets, especially businesses from the developing world.

Finally, the fragmentation and complexity of CSR provisions in FTAs could also increase compliance costs for businesses and make it harder for developing countries to participate in the global market. Significant costs could incur to enterprises in the process of acquiring certifications, and establishing internal monitoring systems to meet CSR standards, not to mention the increased paperwork, reporting requirements, and internal audits to demonstrate compliance. Most enterprises entering demanding markets such as the EU and US must hire consultants or experts to navigate the legal complexities. These costs can be particularly burdensome for SMEs, who may have limited resources to invest in CSR compliance, potentially discouraging them from engaging in international trade altogether.

2.2.2. Positive Impacts of Corporate Social Responsibility Regulations in Free Trade Agreements on International Trade

While there are ongoing debates about the effectiveness and implementation of CSR regulations in FTAs, several potential positive impacts on the multilateral trade system can be identified.

First, including clear and enforceable CSR provisions in FTAs can help prevent “social dumping” where countries attract businesses by offering lax labor, environmental, or human rights standards. This creates an unfair advantage for companies operating in those countries and disadvantages those adhering to stricter standards. Strong CSR regulations in FTAs can help level the playing field, ensuring competition is based on quality, innovation, and efficiency rather than exploiting social or environmental weaknesses. For instance, the US-Mexico-Canada Agreement (USMCA) includes provisions on labor rights (Article 23.3), environmental protection (Article 24.3), and corporate governance, aiming to address concerns about unfair competition due to Mexico’s lower standards in these areas.

Second, by incorporating environmental and social sustainability principles into FTAs, governments can encourage businesses to adopt responsible practices throughout their supply chains. For example, FTAs can require businesses to disclose information about their supply chain practices, including environmental and social performance. This transparency can increase accountability and encourage businesses to adopt more responsible practices. This can lead to reduced environmental impact, improved labor conditions, and better community engagement, ultimately contributing to a more sustainable global trade system. One case in point is the EU‑Vietnam FTA, which includes commitments to sustainable forest management, biodiversity protection, and labor rights, aiming to promote responsible trade practices and address environmental and social concerns.

Third, FTAs with robust CSR provisions can serve as building blocks for broader multilateral cooperation on developing and harmonizing global CSR standards. By sharing best practices and establishing common ground, countries can collectively address global challenges like climate change, labor exploitation, and human rights abuses. To exemplify, the Trans-Pacific Partnership (TPP) negotiations aimed to establish comprehensive and ambitious CSR standards, although the agreement itself is currently not in effect. However, the discussions and frameworks developed during the TPP negotiations can still inform future multilateral efforts on trade and sustainability.

2.3. Impacts of Merging of CSR-Related Provisions into Multilateral Trade Agreements on the Operations of the World Trade Organization

WTO has not made any clear movement to include CSR-related regulations in multilateral trade agreements in the near future. The inclusion of CSR into binding provisions of the WTO multilateral trade agreements still faces many practical and theoretical difficulties, because of its significant impact on the operations of the WTO.

2.3.1. Impacts on the Implementation of Fundamental Principles of the WTO

The decision to include CSR-related provisions into an agreement comes from the intentions of engaging parties in that agreement. A study suggests that the number of CSR-related provisions correlates with the socio-economic similarities between the parties.^[38] Accordingly, RTAs and FTAs signed by parties with minimal differences in economic size (expressed in GDP) and development (expressed in GDP per capita) tend to incorporate more CSR-related provisions. Conversely, RTAs and FTAs between parties with significant socio-economic differences are less likely to include such provisions. Moreover, the study also demonstrates that RTAs and FTAs negotiated by developed countries with higher living standards often contain more comprehensive CSR-related provisions. Thus, it can be concluded that parties with similar high levels of development find it easier to reach a consensus on including CSR provisions into their agreements. Meanwhile, WTO, comprising 166 members with varying levels of socio-economic development, faces greater complexity and time constraints in deciding whether to incorporate CSR into its agreements. Additionally, corporate social responsibility is an issue raised for private bodies such as corporations, businesses and so on. Meanwhile, the WTO solely governs the behaviors of the governments of its members, therefore, it is argued that the WTO has no direct authority over private bodies within states.^[39] Although activities of corporations are heavily influenced by government policies and practices, WTO is more concerned with relationships between states rather than within states.^[40] As a result, imposing social and environmental standards on corporations is likely not the priority of WTO agreements.

Trade without discrimination and freer trade are fundamental principles of the WTO agreements.^[41] The non-discrimination principle consists of two parts: “Most-favored-nation” (MFN) and “National treatment”, which means treating trading partners equally and not discriminating between citizens and non-citizens, respectively. “Freer trade” principle is a vital instrument to encourage global trade by reducing tariff and non-tariff trade barriers. These two basic principles are reflected in the most important trading agreements approved by WTO members, including GATT and GATS. Meanwhile, many kinds of restriction and prohibition policies adopted by governments for the benefit of community health, public morals and environmental protection may violate one of the aforementioned WTO fundamentals. For example, governments may initiate a restriction on a specific product exported from a particular country and the policy may be justified as a means to protect the community health of the importing country. This kind of government activity may lead to discrimination between different trading partners, which is opposite to the MNF principle. In certain circumstances, CSR policies may result in a reduction of trade freedom as some barriers may be created in the sense of community interest guarantee.

2.3.2. mpacts of Binding and Non-Binding Approaches on Performing a Non-Discriminatory International Trade Environment along with Sustainable Development

There are plenty of ways to include CSR into multilateral or regional agreements, which may be classified into two styles: binding and non-binding. These methods, indeed, have both advantages and disadvantages.

2.3.2.1. Non-Binding CSR-Related Regulations

Voluntary CSR is a common way used in several multilateral agreements to promote states and corporations to adhere to social, environmental, and labor standards. Language used to reflect CSR in this way is inclined to be aspirational and located within the preamble of the agreement.^[42] The advantage of this option is that freedom of trade is guaranteed because participating states are only encouraged to promulgate social or environmental policies and corporations are not required to implement CSR in their activities. However, this option also faces a disadvantage in the sense that a non-legal binding CSR provisions also means adapting CSR into policies is not an obligation of state members, therefore, there may be no schemes to guarantee that CSR standards are adhered to by corporations and state members.

2.3.2.2. Binding CSR-Related Regulations

Mandatory CSR is another selection, in which promulgating particular social, environmental, or labor policies or tools is the obligation of participating states. Therefore, members must commit to not only trade-related provisions but also CSR requirements by cooperating with other members on international level and promoting CSR instruments at the domestic level, such as compliance with a performance standard to attain permits, mandatory impact assessments and mandatory sustainability reporting.^[43] The merit of this approach is that CSR-related provision can be enforced in practical circumstances. However, this way may result in several side effects which may violate some of WTO’s crucial principles such as: MFN and National treatment. Strong financial and human resources are necessary for members to fulfill their social responsibilities, which can be a discrimination toward developing countries that are lacking those resources.

These aforementioned may be some of the reasons leading to the hesitation of WTO in incorporating CSR provisions into any multilateral trade agreements signed within this organization.

2.4. Notes on Merging Corporate Social Responsibility into the World Trade Organization Multilateral Trade Agreements

Despite the hesitating attitude of WTO in including CSR-related regulations in its agreements, the global community still increasingly recognizes the importance of CSR. Therefore, the WTO should consider the challenge that it may face to incorporate CSR into its multilateral trade agreements. This task requires a careful balance between economic interests and the imperative to foster sustainable business practices. Here are some essential notes that the WTO should consider in this pursuit:

2.4.1. Defining the Scope of CSR-Related Provisions

It is crucial for the WTO to limit the scope of CSR in the trade context. Defining CSR clearly and concisely within the context of international trade may ensure a common understanding among member states. In general, there are many controversial opinions about how many key components CSR includes. Thus, negotiation for adopting CSR international standards as uniform provisions in WTO agreements is an option to resolve this matter. Some international standards that have been recently conducted are the OECD Guidelines for Multinational Enterprises, the OECD Principles of Corporate Governance, the UN Global Compact, the UN Guiding Principles on Business and Human Rights, the ISO 26000 guidelines or the ILO Tripartite Declaration of Principles concerning Multinational Enterprises and Social Policy.

There is an opinion that the WTO should apply CSR standards that have already existed in several FTAs. However, it is probably challenging to use CSR regulations in recent FTAs as sources of CSR in the WTO rules. Since most of the FTAs are bilateral or multilateral but only signed with no more than 5 states, it is relatively impossible for adopted CSR regulations to balance the benefits of 166 member states of the WTO. Additionally, as mentioned above, there are a lot of existing FTAs and RTAs containing CSR provisions, which only refer to the “internationally recognized standards” without adding any further precise explanation. Therefore, instead of invoking some vague CSR provisions in recent FTAs and RTAs, the WTO should create its own scope of CSR, along with detailed internationally recognized CSR standards and then include these standards into its multilateral trade agreements in the form of CSR provisions.

2.4.2. Selecting an Appropriate Approach in Merging CSR into WTO Trade Agreements

As mentioned above, there is a debate about the feasibility of making CSR commitments mandatory or voluntary within WTO agreements. Both measures have several merits and demerits. However, from our point of view, it is recommended to consider incentivizing compliance with CSR standards rather than imposing strict obligations, so WTO will be able to promote a non-barrier trading environment and sustainable development simultaneously. Since the WTO does not want to command state members to follow CSR standards, which is out of this organization’s primary objective, it is more appropriate for them to encourage CSR through releasing guidelines.

2.4.3.Establishing Effective Enforcement Mechanisms and Dispute Resolution

One of the cornerstones of a successful CSR framework within a multilateral trade agreement is the establishment of robust enforcement mechanisms and dispute resolution processes. To ensure that CSR commitments are not merely lip service, it is important to monitor and enforce these commitments effectively. This involves contemplating the creation of dispute resolution mechanisms within the WTO framework. Defining consequences for non-compliance is equally important to ensure accountability and incentivize adherence to CSR principles.

2.4.4. Maintaining the Adaptability and Regular Review on CSR Provisions

The dynamic nature of global standards and priorities necessitates an adaptable CSR framework. To remain relevant and effective, it is essential to build flexibility into the framework. This flexibility allows for the accommodation of evolving global standards and priorities. Additionally, implementing regular reviews of CSR provisions is crucial. These reviews enable the incorporation of advancements in sustainable business practices and the addressing of emerging challenges, ensuring that the CSR framework remains robust and responsive to changing circumstances.

2.4.5. Coordinating with Other International Bodies

Collaboration with other international organizations involved in CSR and sustainable development is paramount for harmonizing standards and avoiding the duplication of efforts. Establishing effective communication channels between the WTO, United Nations (UN) agencies, and other relevant bodies is essential for fostering coherence in global CSR efforts. This collaborative approach not only leverages the expertise of various organizations but also facilitates a unified and coordinated approach to addressing global sustainability challenges. Merging CSR into WTO multilateral trade agreements requires a delicate balance between economic interests and responsible business practices. The ultimate goal should be to create a framework that harmonizes the linkage between promoting sustainable development and fostering a fair and open global trading system.

Conclusion

This research has explored the complex landscape of incorporating CSRs into FTAs and its potential impact on the multilateral trade system. The authors have examined the arguments for and against such integration, analyzed existing efforts, and discussed the potential benefits and challenges to find that integrating CSR into FTAs holds promise for promoting responsible business practices, enhancing social and environmental standards, and protecting labor rights within the global trading system. However, concerns exist regarding uniformity, enforcement, potential protectionism, and the burden on developing countries.

As a result, successful implementation requires careful design, clear definitions, effective enforcement mechanisms, and capacity building for developing countries. The multilateral trading system, such as the WTO, plays a crucial role in setting minimum standards and fostering harmonization of CSR measures across FTAs. Stakeholder involvement, including civil society and worker organizations, is essential for transparency, accountability, and ensuring the effectiveness of CSR provisions. Further research is also needed to evaluate the actual impact of CSR integration on FTAs and the development of effective monitoring and enforcement mechanisms. Ultimately, the success of this endeavor will depend on a balance between promoting responsible business practices, preserving free trade principles, and ensuring equitable development for all.

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