Sustainability provisions in regional trade agreements: Can they be multilateralised?
With the rise of deep-integration regional trade agreements (RTAs), the role of sustainable development has become an inevitable discussion. Recent agreements reflect a trend in favour of incorporating comprehensive sustainable development provisions, not just among developed countries, but also among some developing countries, with different countries employing different approaches to ensure the protection of social, economic, and environmental concerns.
Despite the different approaches, similarities across the RTAs have emerged. The emerging homogeneity in these RTAs has opened discussions about a possible convergence between regionalism and multilateralism. Having multilateral commitments on trade and sustainable development could advance the cause of sustainability, while at the same time bolstering the multilateral, rules-based, trading system. However, there are challenges associated with convergence, particularly with the enforceability of sustainability provisions. Also, there is a general reluctance among developing countries to take on binding commitments in this area.
Given the lack of progress generally in the World Trade Organization (WTO) on sustainability issues and the hesitance of developed countries to adopt enforceable obligations, a plurilateral solution seems difficult, although not impossible. A proper navigation course is required for this initiative to be successful; the paper explores several options in this respect.
Sustainable development has been commonly defined as development that meets the needs of the present without compromising the ability of future generations to meet their own needs. It has become a bedrock principle for policy objectives across the world, incorporating three pillars – economic development, social development, and environmental protection – that are considered interdependent and mutually reinforcing.
Accordingly, sustainability is an important objective in regional trade agreements (RTAs), and ensuring that trade effectively contributes to sustainable development remains one of the main political mandates in modern trade. The proliferation of RTAs has also seen a growing awareness of sustainable development concerns. Over time, several bilateral and regional trade agreements have incorporated explicit sustainability provisions, which have been evolving toward more comprehensive approaches as states are becoming more resourceful and creative in their efforts to address sustainability in RTAs.
To date, RTAs are characterised by a wide scope of sustainable development provisions, from innovative cooperation mechanisms, through provisions to address conflicts at the intersection of trade and sustainable development, to measures promoting compliance with international or domestic environmental and labour laws, or regulatory commitments to advance social or environmental objectives. However, the incorporation of comprehensive measures is not universal; rather, it is limited to certain countries that have sustainable development commitments as part of their political mandates. To date, many RTAs do not contain comprehensive commitments, and, in some cases, no commitments on sustainable development at all.
Accordingly, this paper focuses on so-called deep-integration RTAs. Deep integration refers to RTAs that go beyond border protection measures and include “behind the border” measures, such as product and market regulation. These agreements are analysed on the basis that they contain the most comprehensive provisions on sustainable development and trade. To date, most of the signed deep-integration RTAs are by developed countries with some developing countries participating in the agreements, although not as demanders. The focus is primarily on deep-integration RTAs that have a global economic impact on third parties, and on trade and sustainable development. Nonetheless, some other relevant examples are discussed, including the Chilean case, which concerns a developing country that has concluded deep-integration agreements with both developed and developing countries.
Addressing sustainability issues is not only a regional concern, but also a multilateral one. There has been interest in harnessing a process of multilateralising regionalism, by which selected deeper measures incorporated in RTAs could be diffused more widely and consistently across regional negotiations, and lead to convergence at the multilateral level. Given the wide range of country experiences in incorporating sustainability into RTAs, and the evident lack of progress in advancing trade negotiations through the World Trade Organization (WTO), this is clearly a challenging proposition. The paper assesses the extent of the challenge and explores options for sustainable development to be incorporated into the WTO.
Sustainability Provisions in RTAs
Sustainable development has always been at the heart of the WTO and part of the trading system. It is mentioned in the Preamble of the Marrakesh Agreement Establishing the WTO, and the 2001 Doha Ministerial Declaration. Other areas that cite sustainable development provisions include the terms of reference of the Committee on Trade and Environment and the WTO covered agreements, such as the General Agreement on Tariffs and Trade (GATT) under Article XX, the General Agreement on Trade in Services (GATS) under Article XIV, the Agreement on Technical Barriers to Trade (TBT), and the Agreement on the Application of Sanitary and Phytosanitary Measures. The mentioned agreements address environmental concerns that are necessary to protect human, animal, or plant life or health.
Today, sustainable development provisions are being adopted at the regional level by different states. Originally, only a handful of states recognised and incorporated sustainability provisions. The United States (US), Canada, and the European Union (EU) were forerunners that linked and integrated sustainable development and trade in their agreements. In recent years, an increasing number of states have started joining the ranks of the US, Canada, and the EU in incorporating sustainability provisions in their RTAs. For example, the European Free Trade Association (EFTA) has adopted a new model for its RTA agreements that contains a comprehensive chapter on trade and sustainable development. Moreover, some previously negotiated agreements that do not contain a sustainable development chapter are being renegotiated, such as the EFTA-Canada RTA. However, according to Bartels (2013), the practice is far from universal, even among developed countries. For example, Australia still retains its position on separating trade and environmental issues, while Japan has not strongly advocated for sustainable development issues in its agreements. Thus, the level of commitment to deep integration will differ across RTAs. Below is a discussion on the evolution of sustainability provisions as demonstrated by leading states and their RTAs.
Main Sustainability Provisions
From the preceding analysis, a growing number of RTAs now go beyond merely giving lip service to sustainability to including sustainability provisions in the body of the agreement, through detailed chapters, specific paragraphs, or side agreements. Furthermore, it should be noted that RTAs, despite being concluded by different parties, have similar provisions. Yet, only the “most ambitious agreements include a range of provisions, others focus on environmental cooperation, and a substantial number only refer to environmental issues in the preamble and in exceptions clauses”. In summary, these are:
Environmental/labour cooperation mechanisms
Environmental/labour standards – International Labour Organization (ILO) declaration, Montreal Protocol;
Dispute settlement mechanisms;
Environmental and labour chapters – issues covered range from timber (USPeru), genetic resources (EFTA – Colombia), to fisheries (TPP); and
General exceptions – GATT Article XX, SPS and TBT provisions.
Cooperation mechanisms vary depending on the specific issues being addressed, such as, labour, environmental, and marine issues. Environmental cooperation provisions are included either in the body of the RTA or in the side agreements (including joint statements, arrangements, etc.). The areas of cooperation in different RTAs vary significantly and depend on a range of factors, such as whether the trade partners have comparable levels of development or not (in which case, cooperation often focuses on capacity building), or whether they have common borders. Most RTAs considered above include provisions on environmental cooperation – for example, those of Canada, the EU, Japan, and the US.
Most RTAs have incorporated articles reaffirming the parties’ commitments to international standards. One of the common commitments incorporated refers to the implementation of the ILO core labour standards contained in the Declaration on Fundamental Principles and Rights at Work, and the promotion of objectives included in the ILO’s Decent Work Agenda. Another important provision is the enforcement obligation, which obliges parties to enforce sustainable development provisions. Other important provisions cover transparency, which calls for the publication and sharing of information with the public, and the right to regulate, which is a clause reiterating the compatibility between the parties’ trade obligations and their right to adopt or maintain environmental regulations and standards.
Of course, enforceability is binding only if agreements are subjected to dispute settlement. Dispute settlement mechanisms are established within most of the agreements. However, sustainable development provisions in RTAs have mostly been excluded from the general dispute settlement mechanisms in RTAs, except for US trade agreements. The separate remedy for environmental disputes and the fact that trade sanctions are not allowed for environmental disputes, provides insight into the lingering reservations concerning the trade and environment debate. Yet, not all US RTAs with enforcement provisions in environmental chapters allow for dispute settlement for all the provisions in the chapter. For example, Article 17:2.1 (a) of the dispute settlement process is only available under the CAFTA-DR for a violation of terms in the environment chapter when a party is failing “to effectively enforce its environmental laws through a sustained or recurring course of action or inaction, in a manner affecting trade between parties”. Sustainable development provisions generally do not guarantee any form of protection, as they are generally excluded from binding dispute settlement.
ISDS provisions have emerged as a trend in recent RTAs, despite the controversy surrounding them. The provision on ISDS dates to NAFTA and, as demonstrated in recent agreements, has been incorporated in other agreements, such as the TPP and the CETA. The provision is most likely to be included in future agreements, such as the TTIP. Given recent agreements signed and under negotiation, it is still expected that the EU will seek to include an ISDS clause in any EU-Australia FTA. ISDS creates another platform to resolve disputes. Investors will no longer have to rely on their governments to bring disputes. On the one hand, this gives investors the platform to challenge sustainable development provisions that may pose a threat to the implementation of those provisions domestically. Ultimately, the EU plans to set up an investment court that moves away from the system of ISDS to a permanent body to decide investment disputes. According to the EU, the Multilateral Investment Court would have the potential to replace the dispute settlement provisions included in those older agreements.
Peter Draper is Managing Director at Tutwa Consulting Group. Nkululeko Khumalo is a Senior Associate at Tutwa Consulting Group and a trade and competition law consultant. Faith Tigere is an intern at Tutwa Consulting Group.
This paper has been produced under the RTA Exchange, jointly implemented by the International Centre for Trade and Sustainable Development (ICTSD) and the Inter-American Development Bank (IDB). The RTA Exchange works in the interest of the sharing of ideas, experiences to date and best practices to harvest innovation from RTAs and leverage lessons learned towards progress at the multilateral level.