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Europe: Leader on non-trade objectives in trade agreements

02-07-2020

Lisa Lechner, ECDPM Great Insights magazine, Volume 9, Issue 2

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The European Union has long been a leader in using trade agreements to pursue non-trade objectives, such as social and political rights, security, and environmental protection. Where Europe has lagged is in adding enforceability to these provisions and anchoring commitments in the international legal framework on sustainability. That, however, might be changing.


With Brexit under negotiation and ambitious plans for future trade agreements ahead, the EU faces pivotal questions on its trade policy. Crucially, what form should future trade agreements take? It is important to realise that not only the number of preferential trade agreements (PTAs) is expected to rise, but their scope and depth are increasing as well. Trade agreements covering only import and export duties are a thing of the past. Modern agreements contain provisions on investment, taxation, public procurement, and even entire chapters on non-trade objectives.


Leadership on non-trade objectives


In the 1970s, just 4% of EU trade agreements covered civil and political rights – mainly provisions on human dignity, the right to political participation, minority protection, and women’s and children’s rights. Among the EU trade agreements signed since 2010, 93% include at least one of these clauses. While 8% of early EU agreements mention security issues, such as combatting drug trafficking, money laundering and terrorism, half of recent agreements emphasise these aspects. The same is true for economic and social rights provisions and environmental provisions. All modern EU trade agreements cover these aspects, compared to, respectively, 69% and 19% of agreements in the 1970s. Economic and social rights provisions pool the right to work, rights at work, the right to education, the right to development and the right to health. Environmental provisions address natural resources conservation, waste and air pollution, and wildlife and game protection.

Figure 1 charts the rise of these non-trade objectives in EU trade agreements over time. Compared to others, including developed countries, the EU has taken and still holds a leading role in regulating non-trade objectives via trade agreements (Lechner 2019)

Figure 1 Non-trade objectives in EU preferential trade agreements over time


Source: Data from Lechner (2016, 2018).


Room for improvement


Despite this leadership, many would like to see an even stronger EU stance on non-trade objectives. Calls for a harder line are especially heard vis-à-vis trading partners with low standards and highly competitive imports. Stakeholders such as trade unions, firms facing competition from abroad and non-governmental organisations want the EU to increase the enforceability of the non-trade provisions in its trade agreements (Lechner 2016). The EU institutions have exerted pressure for fairer trade. For instance, the European Parliament took a strong stance on human rights conditionality during negotiation of the EU-Canada free trade agreement (FTA) (Meissner and McKenzie 2019). Individual member states have raised their voices for more and stricter non-trade objectives. France and the Netherlands, for example, recently pushed for tougher labour and environmental standards (see article in this Great Insights). As part of the European Green Deal they advocated a mechanism for the EU to charge levies on imports from non-EU countries based on their carbon footprint (Brunsden and Mallet 2020). Finally as the global climate change crises intensifies, international calls for stronger commitments to sustainability via trade relations will almost certainly rise.

The current dissatisfaction boils down to two main shortcomings of non-trade objectives in EU PTAs. First, past agreements lack enforceability of sustainability clauses. Second, few EU PTAs reach beyond the EU legal framework, so the commitments they contain lack anchoring in the international legal framework on sustainability. This, however, might be changing.


Adding teeth to sustainability clauses


The EU is well known for its ex ante conditionality clauses. These feature in a wide range of its accession agreements. The EU overall has not been shy about asking partners to demonstrate progress on non-trade objectives in exchange for signing an agreement granting access to the EU market. The risk of this approach is that countries may backtrack after an agreement’s entry into force. Recognising this shortcoming the EU has begun adding ex post conditionality; that is language specifying sanctions, or at least a legal process, for violations on non-trade objectives after a treaty has been signed.

EU negotiators pursued ex post conditionalities when negotiating trade agreements with South American countries. Hence, the agreements with Central America and with Colombia and Peru, both signed in 2012, include ex post conditionality. In specifying legal consequences for later violations of labour rights or environmental regulations, these agreements mark the start of a new era for the EU in non-trade objective conditionality.

Exceptions can still be found, such as economic partnership agreements (EPAs) with various African countries and regions, where the parties rely on cooperation and dialogue instead of enforcement. Also, the Stabilisation and Association Agreement between the EU and Kosovo, signed in 2015, followed the traditional approach of ex ante conditionality without ex post conditionality.


Anchoring in international treaties on sustainability


In the past, the EU has preferred to reference only its own legal framework in trade agreements. On sustainability aspects, it refers to the EU acquis or specific regulations or past decisions on the matter. Other developed countries have chosen to reference international instead of their own domestic treaties or organisations on sustainability. The International Labour Organization, the Universal Declaration of Human Rights, the Rio Declaration and the Kyoto Protocol are among those most cited. Such references have a dual function. They increase the credibility of the non-trade objectives while also underlining the authority of the third-party institution itself.

Since 2000, the EU has increasingly referred to these third-party organisations and international treaties on sustainability. This shift was facilitated by the EU’s commitment to and promotion of the United Nations Millennium Development Goals, which were established that year. Considering the EU’s agenda on climate change, it is interesting to see that very recent trade agreements, such as that between the EU and Mercosur, emphasise commitment to the Paris Agreement. These references undoubtedly help ‘lock in’ important international treaties. Countries may be less likely to violate international regulations on sustainability or exit an international agreement if it has direct consequences for trade relations.


Finding the right institutional design


Non-trade objectives are certain to remain a core pillar of EU trade policy. Considering the increased domestic and international pressure, sustainability clauses will likely have more teeth in future trade agreements. Deeper integration between trade agreements and international bodies is also expected, particularly on labour rights and environmental protection. However, to figure out the optimal institutional design for regulating and improving global sustainability, further analysis is needed. In particular, it is important to better understand the consequences of the different non-trade provisions in modern trade agreements.


References

Brunsden, J. and Mallet, V. 2020. France and Netherlands call for tougher EU trade conditions. Financial Times, 5 May: 7-9.

Lechner, L. 2016. The domestic battle over the design of non-trade issues in preferential trade agreements. Review of International Political Economy, 23(5): 840-871.

Lechner, L. 2018. Good for some, bad for others: US investors and non-trade issues in preferential trade agreements. Review of International Organizations, 13(2): 163-187.

Lechner, L. 2019. The trend to more and stricter non-trade issues in preferential trade agreements. In Elsig, M., Hahn, M. and Spilker, G. (eds), The Shifting Landscape of Global Trade Governance, pp. 233-252). Cambridge: Cambridge University Press.

Meissner, K. L. and McKenzie, L. 2019. The paradox of human rights conditionality in EU trade policy: When strategic interests drive policy outcomes. Journal of European Public Policy, 26(9): 1273-1291.


About the author

Lisa Lechner is Assistant Professor of Methods and Methodology in Political Science at the University of Innsbruck. Much of her research uses network and text analysis to study international treaties such as trade agreements, bilateral tax treaties and environmental agreements, as well as national and international jurisdictions.


Photo: Garment worker in Cambodia. Photo copyright: Kristof Vadino


This article was published in Great Insights Volume 9, Issue 2

Economic Transformation and TradeTrade

External authors

Lisa Lechner