Leveraging Free Trade Agreements for Climate Action – the EU example

LE Thi Thanh Tam & NGUYEN Thi Mai Anh

Abstract

This paper explores the critical intersection of trade, sustainable development, and climate change, using the European Union’s (EU) groundbreaking initiatives as a case study. The primary aim is to identify effective strategies for leveraging Free Trade Agreements (FTAs) to bolster global climate action. Through a detailed examination of the EU’s approach, the study investigates key elements such as the incorporation of dedicated environmental chapters within FTAs, the establishment of binding commitments and measurable targets, and the application of trade incentives to promote green practices. Furthermore, it examines collaborative regulatory frameworks, technology transfer mechanisms, dispute resolution procedures, and inclusive stakeholder engagement strategies embedded in EU FTAs. By analyzing these dimensions, the paper seeks to provide actionable insights and recommendations to guide international efforts, offering a blueprint for utilizing FTAs as robust instruments to advance sustainable development and combat climate change.

Keywords: Trade, climate change, sustainable development, FTA, the linkage.

Résumé

Cet article explore l’intersection cruciale entre le commerce, le développement durable et le changement climatique, en prenant les initiatives révolutionnaires de l’Union européenne (UE) comme étude de cas. L’objectif principal est d’identifier des stratégies efficaces pour tirer parti des accords de libre-échange (ALE) afin de renforcer l’action climatique à l’échelle mondiale. À travers une analyse approfondie de l’approche de l’UE, l’étude examine des éléments clés tels que l’intégration de chapitres environnementaux dédiés dans les ALE, l’établissement d’engagements contraignants et d’objectifs mesurables, ainsi que l’utilisation d’incitations commerciales pour promouvoir les pratiques vertes. En outre, elle analyse les cadres réglementaires collaboratifs, les mécanismes de transfert de technologies, les procédures de résolution des différends et les stratégies d’engagement inclusif des parties prenantes intégrées dans les ALE de l’UE. En étudiant ces dimensions, cet article vise à fournir des idées et des recommandations concrètes pour guider les efforts internationaux, offrant ainsi un plan directeur pour utiliser les ALE comme instruments puissants pour promouvoir le développement durable et lutter contre le changement climatique.

Mots-clés : commerce, changement climatique, développement durable, ALE, interconnexion.

   

In the contemporary global landscape, the nexus of trade, climate change, and sustainable development has emerged as a critical and widely debated issue. As nations ardently pursue sustainable development goals, the looming challenges posed by climate change cast a significant shadow over these endeavors, impacting commercial activities to varying extents. Recognizing the pivotal role played by these three factors in economic progress, Trade and Sustainable Development (TSD) programs encounter the pressing need for continuous refinement of existing agreements. This research article, structured into four parts, initiates with an exploration of the intricate relationship between trade and climate change. Following this, Part II delineates the frameworks for sustainable trade practices pioneered by the European Union (EU). Part III provides an overview of key features characterizing TSD in existing trade agreements. The concluding section synthesizes insights from the preceding sections and puts forth recommendations aimed at enhancing climate standards within free trade agreements.

1. Trade, Sustainable Development, and Climate Change

From 2030 to 2050, the impacts of climate change may lead to an annual increase of 250,000 deaths due to malnutrition, malaria, diarrhea, and heat stress combined (WHO 2018).

Climate change and sustainable development profoundly affect human existence and has substantial implications for commercial activities. Global warming reduces capital and labor productivity. The value of goods significantly influences labor productivity, and there is a direct connection between climate change and the quantity and worth of goods. Unusual warming can lead to a deterioration in the quality of goods, and in more severe instances, it can hinder the trade of raw materials through canals due to reduced water levels. Furthermore, certain research indicates that climate change directly contributes to the devaluation of assets.^[1] Effectively controlling global climate change within acceptable bounds over the long haul will likely demand the integration of climate change policies with sustainable development strategies in both developing and industrialized nations. To delve into the connections between climate change and sustainable development from the viewpoint of developing countries, it’s imperative to commence by examining the specific local and regional conditions as well as the policy frameworks in place.^[2] A notable relationship exists among trade, sustainable development, and climate change, with each exerting considerable influence on the others.

The initial impact of trade on climate change and sustainable development is the emergence of disparities among nations, particularly those relying on climate and environmental advantages. Agricultural-dependent countries are vulnerable to the adverse effects of global warming on crop yields and quality, leading to food insecurity and hindering sustainable development. In contrast, nations less affected by environmental factors can more easily sustain their positions in various sectors.

Furthermore, extreme weather events have the potential to disrupt supply chains and inflict damage on the essential transport infrastructure required for the trade of goods.^[3] The growing geographical reach of extreme weather events indicates an escalating global challenge, with an increasing number of nations grappling with the impacts of climate change on sustainable development. Global trade is particularly vulnerable to these changes. The expansion of extreme weather events poses a direct threat to port operations, while shifts in precipitation patterns disrupt vital maritime hubs and routes. A prime illustration is the Panama Canal, which facilitates approximately 6% of worldwide maritime trade.^[4] Its operation is heavily reliant on available freshwater resources, making it highly susceptible to alterations in rainfall and drought conditions. Similarly, China’s Yangtze River has encountered shipping disruptions due to reduced rainfall and heightened evaporation.^[5]

In contrast to the potential threats posed by climate change, trade is actively working towards mitigating its impacts and fostering sustainable development. International trade serves as a catalyst for enhancing production efficiency, encouraging the judicious use of resources, and optimizing natural resource utilization.^[6] The widespread scope of contemporary global trade enables the upscaling of production through progressively efficient methodologies. This, in turn, allows for the increased output of goods using consistent units of labor, resources, and technology. Consequently, this contributes to minimizing the environmental footprint on the climate while upholding living standards. Moreover, trade serves as an effective driver for technological innovation. Heightened levels of trade and business activities can stimulate progress in energy efficiency by facilitating the exchange of technological knowledge, resulting in the creation of goods and services with reduced greenhouse gas emissions. The augmented income generated through trade can also generate a demand for enhanced environmental standards within society, thereby mitigating the impact of climate change. For instance, increasing awareness about health preservation may lead to a decrease in the usage of plastic bags to prevent the release of harmful microplastics, ultimately reducing environmental waste and contributing to the achievement of sustainable development goals.

Acknowledging the interconnection between trade, sustainable development, and climate change, an increasing number of Free Trade Agreements (FTAs) are being established with clauses focusing on sustainable development. This assumes a crucial role in shaping a global economic framework that prioritizes environmental accountability, social equity, and enduring prosperity. These clauses act as a significant structure, integrating sustainability principles into the core of international trade. Primarily, these provisions underscore a commitment to harmonizing economic growth with environmental preservation. Through the establishment and enforcement of environmental standards, FTAs motivate participating nations to adopt measures reducing their ecological footprint, fostering a global economy that is more sustainable and resilient. Additionally, these provisions are instrumental in advancing social inclusivity and just labor practices. By incorporating commitments to safeguard labor rights, FTAs contribute to ensuring that the advantages of economic development are distributed fairly among workers. Furthermore, sustainable development provisions often facilitate the exchange of green technology and knowledge. This collaboration stimulates innovation and the adoption of eco-friendly practices, promoting the growth of cleaner and more sustainable industries. In essence, these sustainable development clauses within FTAs play a crucial role in steering international trade towards a model that not only prioritizes economic prosperity but also aligns with environmental stewardship and social well-being. This collective effort aims to build a sustainable and inclusive global economy, recognizing the importance of balancing present needs with the preservation of resources for future generations.

2. Frameworks for Sustainable Trade Practices Established by the EU

2.1. The Latest State of Play Regarding the Sustainability of the EU’s Trade Policy

FTAs have also become increasingly important to the trade-climate-energy nexus for key reasons, such as the fact that the WTO and global trade multilateralism have significantly weakened over the last two decades or so, and FTAs have filled into the trade-climate governance vacuum created by an inert WTO and UNFCCC in this area.^[7]

However, it is only in the past decade that climate action in FTAs has markedly intensified and grown on a much larger scale, from which more discernible instances of norm leadership and influence can be observed. At a general level, the EU is one of the trading partners with the most significant provision scope and the largest number of agreements, and by far remains the leader and most influential country on climate norms in FTAs.^[8]

The EU is known for its strong sociocultural values and policies on the environment and climate change, and early on, EU leaders identified climate diplomacy as an area where the EU could establish a position of global leadership.^[9] Since the 1990s, the EU has negotiated FTAs with Central and Eastern European countries, with the most common climate-related theme in these agreements being the promotion of energy efficiency. This aims to overcome the past apathy of Eastern European communist governments in this sector and minimize the significant levels of transboundary pollution affecting EU member states.^[10] However, these provisions are placed in a relatively weak text framework due to a lack of substantive basis.^[11]

It took some time, though, for the EU to emerge as a form of climate norm leader and influencer. A key milestone was the EU-Korea FTA (2010) with the EU’s most important new progress on climate norms being the introduction of the “Trade and Sustainable Development” (TSD) chapter, which cognitively framed many climate action measures in later FTAs.^[12] Since then, EU’s FTAs have included a separate chapter on trade and sustainable development that includes provisions on environmental protection, labour rights, and climate change.

In June 2022, the European Commission announced a new approach to TSD Chapters in its FTAs aiming to address civil society’s concerns related to the contribution of economic growth from trade liberalization to global sustainability challenges. The new approach aims to integrate the EU’ commitment to “ensuring its trade agreements foster sustainability”.^[13]

Overall, the new approach of the TSD Chapter is seen as a positive move towards improving the sustainability regulations of EU FTAs. However, gaps remain as some of the most important parts of TSD assessment will not apply to existing FTAs,^[14] thus limiting the scope of this new approach. However, by employing the “Review” clause found in current agreements or other appropriate procedures, this can be partially fixed.

Since the publication of the new approach to TSD Chapters, three FTAs have been signed under this new approach, namely the EU-New Zealand, EU-Chile and Kenya trade agreements. Of these three agreements, only the EU-New Zealand FTA^[15] has the most fully-fledged revised TSD approach. The EU-New Zealand FTA, signed on 9 July 2023, is the first agreement to integrate the new TSD approach. It sets high standards by committing the Parties to effectively implement the Paris Agreement and their Nationally Determined Contributions (NDCs). Serious actions or omissions breaching this commitment would be subject to the agreement’s dispute settlement mechanism with sanctions as a last resort. Moreover, the Parties reaffirm their commitment to reforming and reducing fossil fuel subsidies.^[16]

The EU-Chile Advanced Framework Agreement^[17] contains a dedicated TSD chapter in the trade section of the agreement, in which the EU and Chile have made clear TSD commitments, along with a dedicated dispute settlement mechanism, but are unlikely to impose sanctions. In addition, there are fewer ambitious provisions to address fossil fuel subsidy reform and trade-related transportation emissions. The lack of such commitments in the agreement’s sector-specific Chapters is a key flaw in addressing the negative impacts of trade on sustainability, especially considering the importance of the mining sector in Chile. However, the Commission indicated that it would then recommend the fully-fledged TSD approach to Chile, including the possibility of trade sanctions, as a last resort.^[18]

The anticipation surrounding the EU-Chile agreement was high, both regarding the further implementation of the new TSD approach and in the context of the European Critical Raw Materials Regulation, published in March 2023.^[19] In particular, because Chile is a global supplier of both lithium and copper and with the modernization of their existing trade agreement, the EU wants to secure a steady supply of critical raw materials for the green and digital transitions.^[20] Figure 1 shows EU imports from Chile in 2022. It underscores Chile’s importance as a trade partner for the EU for the import of mining products, including lithium and copper. Moreover, Chile is also an important supplier of counter-seasonal products to the EU market, including fruits, vegetables, and fish.^[21]

Figure 1: EU imports from Chile in 2022

Source: Figure by the author using Eurostat trade data with Chile.

The EU-Kenya Economic Partnership Agreement (EPA)^[22] (negotiations concluded in June 2023) also includes a dedicated TSD chapter covering labor, gender equality, environmental, and climate issues, as well as the possibility of activating a dispute settlement mechanism^[23] in case of breach of TSD commitments. Like the EU-Chile agreement, it does not envisage the possibility of sanctions, but it does contain a commitment to start the process of reviewing TSD aspects of the agreement as soon as the trade agreement enters into force. The EU is expected to introduce a new TSD approach in ongoing FTA negotiations, such as with Australia, India, and Indonesia.^[24]

2.2. Assessing the EU’s New Approach to TSD Chapters and Enforcement

The Committee identified 20 action points from the new TSD approach,^[25] presented in Table A of the Annex, which can be classified into five categories: (i) leveraging FTAs for cooperation on sustainability, (ii) enhancing the sustainability credentials of FTAs, (iii) consulting broader civil society, (iv) targeted actions for the Domestic Advisory Groups (DAGs), and (v) strengthening enforceability of environmental and social commitments.. More specifically, with six policy priorities as shown in Table 1 below:

Table 1: The EU’s new TSD approach

more proactive in its 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; enhancing enforcement by means of trade sanctions as a measure of last resort.

Source: European Commission.^[26]

The first, leveraging FTAs for cooperation on sustainability, including cooperation and supporting trading partners in compliance with international labor and environmental standards, through technical and financial assistance; using the trade agreements to facilitate dialogues with trade partner countries. Although these avenues of cooperation are not new in trade and cooperation frameworks, the Commission reaffirms the role of FTAs as a means for positive dialogue and cooperation to promote positive environmental action and sustainable development.

The second type to enhance the sustainability of FTAs includes integrating tailor-made country‑specific TSD Chapter provisions based on improved sustainability impact assessment (SIA), to negotiate time-appropriate targets and roadmaps to implement sustainability commitments and prioritise market access for green goods, services, and raw materials. Despite progress in the new TSDs such as with New Zealand or Chile compared to previous chapters,^[27] some parties criticised the Commission’s reluctance to commit to negotiations more binding sustainability than the provisions of the new TSD approach.^[28] Another difficulty in the implementation of the new TSD approach is the lack of an implementation roadmap accompanying the new FTAs.

The third category is consulting broader civil society, which aims to improve processes for civil society, stepping up monitoring of the implementation of TSD Chapters. This ensures better consultation with civil society in the early stages of SIA, from the FTA life cycle to implementation. Furthermore, the Operating Guidelines of the Single Entry Point (SEP) have been revised to enhance predictability for FTA parties by clarifying that systemic failures to apply laws or regulations aligned with TSD commitments would constitute a violation.^[29] This could limit the scope of violations from trading partners.

The fourth category includes targeted actions for DAGs, which are a small group of business, labor, and environmental stakeholders tasked with overseeing the implementation of the TSD Chapter.^[30] These actions aim to strengthen the DAG’s capacity, legitimacy, effectiveness, and transparency, in addition to promoting and facilitating interaction between EU DAGs and partner countries, and expanding the scope of DAG supervision beyond the TSD to cover the entire FTA. The strengthening of DAGs is a positive development, as EU DAGs already face limited efficiency issues such as insufficient time and resources to further investigate socio-environmental concerns and a lack of representation of environmental stakeholders.^[31] The final category relates to strengthening the TSD enforcement mechanism for future trade agreements as well as modernizing all FTAs in force. The introduction of sanctions as a last resort is a good sign of the EU’s more assertive stance.^[32] Furthermore, the Commission has now integrated the compliance phase of the state-to-state dispute settlement process in the TSD Chapter, meaning that the Party found to be non-compliant must discuss actions or measures taken taking into the expert panel’s recommendations.

The European Commission considers the new TSD approach “a major step in making EU trade greener, fairer and more sustainable”. However, some of the most important parts of the new TSD will not apply to existing FTAs,^[33] thus limiting the scope of the new approach to deliver sustainable trade. However, there is the possibility of revisiting the content of the TSD Chapter after the agreement enters into force if it includes a “Review” clause. However, not all existing FTAs include this clause, so the possibility of amending an existing trade agreement will likely lie with both Parties agreeing to update or modernize the FTA.

For instance, in the EU-New Zealand FTA, the possibility of sanctions would only apply to actions or omissions that materially defeat the object and purpose of the Paris Agreement and for the violations of the fundamental ILO conventions.^[34] While the scope of the ILO’s core conventions is clear, the Paris Agreement is not the same. Therefore, in practice,the enforceability for non‑compliance with environmental commitments through sanctions in this FTA remains uncertain.^[35] Moreover, the EU-Chile agreement does not include the possibility of sanctions for non‑compliance with the Paris Agreement or fundamental ILO conventions.^[36] Another example of an FTA being negotiated by the EU-Mercosur, does not seem to address important aspects, such as the lack of a sanctioning mechanism for TSD commitments “makes their implementation to a large extent dependent on the parties’ political goodwill.”^[37] This suggests that not all future EU FTAs include the concept of sanctionable green provisions. Some experts also point out that the new approach has certain gaps and ambiguities. For example, the language in TSD chapters is too vague and non-commital, making it impossible to enforce. BusinessEurope^[38] remains skeptical about whether sanctions for non-compliance encourage enforcement and how sanctions will be applied if they are introduced. With regard to potential violations of climate provisions, some experts have asked how a dispute settlement panel could deliver an objective assessment of whether a party’s introduced action or omission contradicts the objectives of an FTA.^[39]

3. Case Study: EU-Chile Advanced Framework Agreement

Every contemporary trade agreement formed by the European Union (EU) incorporates sections dedicated to both trade and sustainable development, encompassing a comprehensive array of jointly established commitments. The Communication outlines policy priorities and essential action items, aiming to strengthen the existing approach to Trade and Sustainable Development (TSD). This approach relies on active engagement within the international framework and adherence to established standards, emphasizing more robust implementation and enforcement mechanisms to enhance effectiveness.

The trade agreement between the European Union and Chile has incorporated fresh sustainability components within the Trade and Sustainable Development (TSD) Chapter and throughout the entirety of the Free Trade Agreement (FTA).^[40] The selection of the EU-Chile agreement as a practical illustration is rooted in Chile’s notable strengths in agriculture and mining. This highlights that the potential growth in these sectors during the trade process could exert substantial environmental pressure. Anticipated challenges include issues related to the cleanliness of water environments and the preservation of biodiversity.^[41] Consequently, the TSD chapters consistently emphasize the integration of measures within the agreements between the EU and Chile to address these concerns. The TSD chapters within the EU-Chile free trade agreement largely maintain consistent policies regarding management, transparency, and collaborative activities. However, there is potential for enhancements in other provisions, particularly in the new TSD, with a focus on specific environmental domains such as climate change, forests, biodiversity, and fisheries.^[42]

The new free trade agreement between New Zealand and the EU sets bold precedence on environmental objectives. From both an economic and political standpoint, policymakers find it challenging to envision that entering into Free Trade Agreements (FTAs) with New Zealand will yield substantial economic advantages in the foreseeable future. The country’s susceptibility to political instability and conflicts directly affects it, coupled with a relatively small population, a GDP representing only 1.5% in comparison to EU nations, and unappealing tariff structures. The primary rationale behind deeming New Zealand unsuitable for initiating FTAs was its inherent characteristics and circumstances.^[43] Nevertheless, the aspiration to broaden the geographical reach of Free Trade Agreements (FTAs) and the eagerness to establish TSD components have been the motivating factors leading to the signing of these FTAs. Essentially, the TSD chapters in both the EU-Chile and EU-New Zealand agreements are largely identical, except for specific elements such as forestry, biodiversity, and climate change. Additionally, there are new chapters introduced in relation to TSD. The inclusion of the Sustainable Food Systems (SFS) Chapter is a recent addition, introduced first in the EU-New Zealand Free Trade Agreement. The EU-Chile’s SFS Chapter closely resembles that of the EU-New Zealand, with the notable addition of articles addressing animal welfare and the combat against antimicrobial resistance. The primary aim of this chapter is to establish a close collaborative effort between the partnering nations for the transition toward sustainable food systems. In this context, the partners acknowledge the significance of reinforcing policies and formulating programs that contribute to the establishment of sustainable, inclusive, healthy, and resilient food systems, recognizing the role of trade in advancing this objective. Within this chapter, a Sustainable Food System (SFS) is characterized as a system that ensures food security, safety, and nutrition for everyone without compromising the economic, social, and environmental foundations necessary for providing food security and nutrition for future generations. Given that the primary goal of the chapter is to enhance collaboration on SFS, its scope encompasses provisions for cooperation on specific facets. These include dedicated sections on ensuring the sustainability of the food chain, minimizing food loss and waste, combating food fraud across the food chain, addressing animal welfare, fighting antimicrobial resistance, and reducing the use of fertilizers and chemical pesticides, especially those identified through risk assessments as posing unacceptable risks to health or the environment. Additionally, the chapter includes a provision on cooperation within multilateral forums, although the specific fora are not explicitly specified.

A specific chapter focused on gender equality is a recent inclusion in EU Free Trade Agreements (FTAs). While gender equality has been previously addressed as an article in the EU-New Zealand Trade and Sustainable Development (TSD) Chapter, the EU-Chile agreement’s dedicated chapter is notably more comprehensive. Within this chapter, the parties acknowledge that the active involvement of women in international trade plays a crucial role in promoting their economic empowerment and independence.

Conclusions and Recommendations to Improve Climate Standards of Free Trade Agreements

With its efforts to raise climate standards and sustainable development throughout the past decades, the EU has emerged as a leader in expanding its sphere of influence with trading partners through FTAs. Following progress on climate standards through the introduction of the TSD chapter in FTAs, the EU’s climate norm leadership and influence was attaining a broader and deeper level of acceptance.^[44]

However, the EU’s impact is relatively limited to a small group of trading partners, often regionally concentrated. Despite more than 40 years of climate action measures in FTAs, there is still little evidence that these measures determined standard norms of trade, energy or other types of policy practice and behaviour among trading partners. Instead, only very general norms have arisen approaching a universal level, focusing on cooperation, not consistent in all FTAs, but mainly specific to each stage and each group, leading to limited replication and distribution efficiency.

In order to promote and ensure the effective implementation of existing FTAs including the TSD chapter that are enforceable in practice, the Commission adopted the communication on “The power of trade partnerships: together for green and just economic growth”^[45] in 2022 to enhance sustainability in EU FTAs, in particular by intensifying the enforcement of their TSD chapters in a new approach with the most notable point being the possibility of trade sanctions, as a last resort.

Overall, the EU’s new approach is not significantly different from those outlined in the United States-Mexico-Canada Agreement (USMCA) and Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) in terms of consultations processes, dispute settlement mechanisms and the possibility of sanctions. However, the CPTPP’s more consultative but broader scope for sanctions for non-compliance with environmental provisions, and the USMCA’s targeted and fast approach to non-compliance with labour provisions. The EU’s approach is also more advanced than some major trade agreements, such as the Regional Comprehensive Economic Partnership (RCEP) and the African Continental Free Trade Area (AfCFTA), which lack sustainability provisions that ensure the enforceability of environmental commitments.^[46] This new strategy is considered a step in the right direction, as it includes dedicated provisions for sustainable development. These provisions aim to increase market access for environmental goods and services while enabling civil society to participate in monitoring the implementation of TSD chapters, as seen in the EU-Chile and EU-New Zealand FTAs.

However, the EU’s new TSD approach may not be sufficient to significantly enhance sustainability on a global scale, as its sphere of influence is limited to its trading partners. Furthermore, the most ambitious aspects of this new approach to sustainability are not retroactively applied to existing FTAs unless they include “review” clauses and agreements between the parties. Even with the new EU-Chile agreement, it remains challenging to address critical sustainability issues, such as sustainable water use in the mining sector. Additionally, the integration of sustainability provisions beyond the TSD chapter—such as dedicated chapters on energy, raw materials, and investment liberalization—continues to be absent. The EU-Mercosur agreement is also at an impasse, as the parties have failed to reach consensus due to concerns about the potential for increased environmental damage and climate change.^[47]

In this context, what is the future for sustainable trade practices? One option is to promote the further integration of sustainability provisions and principles in trade and investment agreements. For example, the quality of environmental impact assessments (e.g., SIAs and FTA ex-post assessments) underpinning the FTA negotiations should systematically utilize the new methodology that assesses the impact of an FTA on biodiversity.^[48]

Another example might include the use of tariff and non-tariff barriers, which are thought to favour carbon-intensive goods compared to “clean industry” goods.^[49] The EU-New Zealand FTA has included a non-exhaustive list of environmental goods and services in the TSD Chapter annex^[50] to promote the use of these goods and services. However, the use of tariffs to disincentivise trade in environmentally harmful goods and services may be contested by some EU trading partners as a measure aimed at disrupting trade. Therefore, the idea of using tariffs to restrict trade in goods and services that are harmful to the environment is likely to be a long and uphill battle.

Simultaneously, the EU will need to determine a consistent approach for the design and implementation of non-tariff barriers in FTAs. With the planned implementation of the Ecodesign for Sustainable Products Regulation (ESPR),^[51] it will be beneficial to leverage its trade frameworks to collaborate with trading partners in the design and implementation of sustainability standards.

The EU can also pursue trade and investment agreements where sustainability goals are considered core objectives, or the “Trade and Environment Agreement” (TEA).^[52] The focus of these negotiations will be to better integrate sustainability provisions throughout the agreement. This could start with reinforcing the Paris Agreement as an essential element of every trade agreement, ideally also retroactively. In addition, such agreements should also add new MEAs such as as the WTO Agreement on Fisheries Subsidies and the Agreement under the United Nations Convention on the Law of the Sea.^[53]

Recommendation

To support the promotion of best practices on sustainable trade, the EU should consider some of the following during the negotiation and implementation phase of its trade agreements:

First, the EU needs to expand the scope of sanctions for non-compliance with environmental targets and take more targeted and swift actions, learning from the approach of the CPTPP and USMCA.

Second, expanding the number of MEAs is considered an essential element in FTAs to strengthen the TSD enforcement mechanism.

Third, in new FTAs, it is necessary to mainstream the introduction of binding commitments to reduce and eliminate fossil fuel subsidies as well as actions that help harmonize carbon pricing systems.

Fourth, integrating the sustainability provisions of the TSD chapter into sector-specific chapters to encourage raising standards for environmental protection and sustainable business.

Fifth, appropriately combine tariff and non-tariff measures to encourage trade in green goods—services, and raw materials while discouraging trade in environmentally harmful goods and services.

In order to raise standards at the global level thereby creating greater environmental and climate impacts, the EU can pursue cooperation in sustainable trade practices with like-minded partners, especially influential partners through encouragement, financing and improving access to green technologies and pursuing stronger Trade and Environment Agreements.

The level of acceptance and broad allocation of climate standard awareness frameworks from trading partners will affect the effectiveness of efforts to raise climate standards through EU FTAs. Heterogeneity, however, among FTAs still prevails, which facilitates policy and norm innovation, but it will not be truly effective if trading partners do not commit to set new innovative benchmarks on substantive climate-relevant commitments.

Overall, climate action measures in EU FTAs over the past decade have been optimally strengthened, with significant new policy changes. Obviously, this general development trend is also happening at the global level, however, international norms of practice on this important and still emerging frontier of the trade-climate nexus remain relatively weak and patchy. In order to strengthen and better distribute efforts from major trading partners such as the EU, it is essential that global governance institutions such as the WTO and UNFCCC need to become more actively involved in managing the deepening links between the global trading system and climate change, thereby creating more consistency in climate standards and sustainable development.

Appendices

Table A: The TSD Chapter Action Points and their categorization

Categorization	TSD Chapter Action Points
Leveraging FTAs for cooperation on sustainability	(1) Step up cooperation with trade partners on compliance with international labour and environmental standards.
	(2) Support and incentivise reform processes and capacity building in trade partner countries through technical and financial assistance, when needed.
	(3) Use trade agreements to facilitate dialogue with partner countries.
Enhancing the sustainability credentials of FTAs	(4) Tailored approach to TSD Chapters, identifying country- specific sustainability priorities, and early and better targeted impact assessments.
	(5) Negotiate detailed and time-bound roadmaps with milestones, where appropriate, with a clear role for civil society for the monitoring and implementation.
	(6) Prioritise market access for environmental goods and services.
	(7) Ensure (sustainability) impact assessments analyse all relevant FTA chapters, and identify which provisions and commitments are most likely to have an impact on sustainability issues.
Consulting broader civil society	(8) Develop a comprehensive EU approach across services, using all available instruments to monitor the implementation of the TSD commitments.
	(9) Work with EU Delegations in their support and definition of best practices, as trade partners work with their local DAGs.
	(10) Support continuous involvement of the European Parliament in the implementation of TSD Chapters and assist it in its effort for regular country-specific discussions on trade and sustainable development.
	(11) Revise the Operating Guidelines for the Single Entry Point to increase transparency and predictability for stakeholders.
	(12) Ensure an inclusive consultation process with civil society through all stages of the lifecycle of FTAs.
Targeted actions for the DAGs	(13) Further strengthen the role of EU DAGs by providing resources for their logistical support, capacity building and functioning.
	(14) Increase involvement of EU DAG representatives in TSD Member States’ Expert Groups and TSD Committee meetings.
	(15) Promote and facilitate interaction between EU and partner countries’ DAGs.
	(16) Foster transparency on the composition of DAGs.
	(17) Exchange views with EU DAGs on EU TSD-related technical assistance projects.
	(18) Ensure that the remit of the DAGs extends beyond TSD in order to cover the entirety of the FTA.
Strengthening enforceability of environmental and social commitments	(19) Further strengthen enforcement of TSD commitments in future agreements: (a) Extend the general state-to-state dispute settlement (SSDS) compliance stage to the TSD Chapter. ​​(b) Involve DAGs in monitoring the compliance stage. (c) Extend the possibility to apply trade sanctions in cases of failure to comply with obligations that materially defeat the object and purpose of the Paris Agreement or in serious instances of non-compliance with the ILO fundamental principles.
	(20) Prioritize the enforcement of TSD cases based on the importance of the nature of the commitments at issues, the seriousness of the violation and the impact on the environment or workers.

Source: Eline Blot, “Green horizons – Towards more sustainable trade after the TSD Review” (2022) 27:Special Issue Perspectivas Journal of Political Science 93 at 95.

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Research Documents

Aubert, Gabriel et al, “Building on the GBF towards more ambitious global environmental commitments: The EU as a diplomatic leader in biodiversity negotiations” (2023) IEEP, online: <ieep.eu/wp-content/uploads/2023/02/Building-on-the-GBF-towards-more-ambitious-global-environmental-commitments_IEEP-2023.pdf>.

Blot, Eline, “Leveraging free trade agreements for sustainability: Reviewing the implementation of the EU’s new approach to sustainable trade” (2023) Institute European Environmental Policy, Policy Report, online: <ieep.eu/wp-content/uploads/2023/07/Leveraging-free-trade-agreements-for-sustainability-policy-report-IEEP-2023.pdf>.

Blot, Eline & Marianne Kettunen, “Environmental credentials of EU trade policy: A comparative analysis of EU free trade agreements” (2021) Institute European Environmental Policy, Policy Report, online: <ieep.eu/publications/environmental-credentials-of-eu-trade-policy/>.

Blot, Eline, Oger Antoine & Emma Watkins, “Trade in support of circular economy: A synthesis report” (2022) Institute European Environmental Policy, Policy Report, online: <ieep.eu/wp-content/uploads/2022/12/CE-and-trade_Synthesis-report.pdf>.

Blot, Eline, Oger Antoine & James Harrison, “Enhancing sustainability in EU Free Trade Agreements: The case for a holistic approach” (2022) Institute European Environmental Policy, Policy Report, online: <ieep.eu/publications/enhancing-sustainability-in-eu-free-trade-agreements-the-case-for-a-holistic-approach/>.

Blot, Eline, “Reflections on the new approach to the TSD Chapters for greener trade” (2023) Institute European Environmental Policy, Briefing, online: <ieep.eu/publications/reflections-on-the-new-approach-to-the-%20%20tsd-chapters-for-greener-trade/>.

Blot, Eline & Susanna Li, “Post-FTA briefing: EU-Chile” (2023) Institute European Environmental Policy, Briefing, online: <ieep.eu/publications/post-fta-briefing-eu-chile/>.

Blot, Eline & Susanna Li, “Post-FTA briefing: EU-New Zealand” (2023) Institute European Environmental Policy, Briefing, online: <ieep.eu/publications/post-fta-briefing-eu-new-zealand/>.

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Kettunen, Marianne et al, “Methodology for assessing the impacts of trade agreements on biodiversity and ecosystems” (2021) Institute European Environmental Policy, Trinomics, IVM & UNEP-WCMC, Report, Service contract for the European Commission No 07.0202/2019/812941/SER/ENV.D.2, online: <environment.ec.europa.eu/system/files/2021-05/Methodology-for-assessing-the-impacts-of-trade-agreements-on-biodiversity-and-ecosystems.pdf>.

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Pichon, Eric, “Economic Partnership Agreement with Kenya (East African Community)” (2023) European Parliament Research Service, Briefing, online: <europarl.europa.eu/RegData/etudes/BRIE/2023/751390/EPRS_BRI(2023)751390_EN.pdf>.

Online Sources

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EC, “Key elements of the EU-Kenya Economic Partnership Agreement” (2023), online: <policy.trade.ec.europa.eu/news/key-elements-eu-kenya-economic-partnership-agreement-2023-06-19_en>.

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