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On track for sustainable trade?

Photo: US Embassy / flickr

AK Wien | June 2023

On track for sustainable trade?

by Thomas Fritz


The European Union’s free trade agreement (FTA) with New Zealand, concluded in June
2022, has been hailed as one of the most progressive trade deals negotiated so far. It is the
first FTA implementing the European Commission’s revised approach towards the chapters
on Trade and Sustainable Development (TSD) included in all recent EU trade agreements.
The main novelty relates to the enforcement of TSD chapters covering environmental and
labour standards, in particular the option of trade sanctions for breaches of obligations on
core labour standards and the Paris Agreement on Climate Change.

Despite these improvements, the novel approach still has several shortcomings and
inconsistencies. It continues to relegate potential disputes on the majority of TSD
commitments to the non-sanctionable compliance stage of the FTA’s dispute settlement
mechanism (e.g. commitments on the ILO’s priority conventions and decent work agenda,
on gender equality, biological diversity, fossil fuel subsidy reform, deforestation, overfishing,
responsible business conduct and supply chain management).

In addition, the sustainability provisions remain too weak to compensate for the pressure on
labour relations and the climate associated with the market access commitments agreed
under the chapter on trade in goods. The TSD chapter lacks targeted provisions improving
working conditions and production methods in sectors prone to poor labour conditions and
high GHG emissions where bilateral trade is expected to increase, such as farming and
manufacturing. The additional trade flows will likely also increase the GHG emissions from
the transportation of goods.

Since the market access commitments have not been tied to the compliance with improved
social or environmental standards, the agreement risks to lock-in harmful production
methods, particularly in agriculture and industry. However, rewarding companies with
additional export opportunities which up to now managed to avoid decarbonisation of their
production processes could delay the green transition even further. This risk is likely to be
higher in New Zealand than in the EU due to the considerable size differences between these
two economies.

Trade analysts are currently debating the impact of the TSD review on future trade
negotiations and potential reservations of trade partners skeptical towards enhanced
sustainability commitments. However, the Commission actually retains any flexibility it
needs to adapt its TSD policy to future negotiations. Flexible adaptation or even backsliding
on its novel approach appear all the more likely when taking the EU’s main trade objectives
into account: securing market access and undistorted access to raw materials. This flexibility
may have the perverse effect of even increasing the trade of harmful products.

Although the TSD revision brought some progressive features to the EU-New Zealand FTA,
its overall shortcoming – fostering trade with emissions-intensive and unsustainable
products – remains unchanged. The agreement could therefore cause the exact opposite of
what is required: an increase instead of the needed reduction in GHG emissions – a risk
confirmed by the Commission’s official impact assessment.

The FTA’s weaknesses demonstrate that the EU’s trade policy still needs a more fundamental
overhaul to make a serious contribution to a green and just transition. Elements of a
meaningful trade reform comprise, inter alia:

◼ participatory impact assessments informing the negotiation process,
◼ pre-negotiation commitments on the implementation of core international treaties,
◼ adding sustainability commitments and related roadmaps to all FTA chapters,
◼ linking trade preferences to companies’ due diligence,
◼ supporting trade partners’ compliance with new EU trade instruments such as the
regulation on deforestation-free products, the Carbon Border Adjustment Mechanism
(CBAM) and the Corporate Sustainability Due Diligence Directive (CSDDD),
◼ strengthening civil society’s monitoring role,
◼ extending the sanctions option to all sustainability commitments,
◼ granting civil society the right to initiate dispute settlement procedures,
◼ extending this reform to all FTAs already in force or currently negotiated.

Download the full report (pdf)

 source: AK Wien