IEEP's assessment of the new EU Trade and Sustainable Development Action Plan

The European Commission has put forward a highly ambitious new Trade and Sustainable Development Action Plan, but how far does it go to deliver sustainability in free trade agreements?

On 22 June 2022, the European Commission unveiled its new Trade and Sustainable Development (TSD) Action Plan, detailing specific actions to be undertaken to ensure that its free trade agreements (FTAs) deliver for the environment and sustainable development. How far does it go to deliver sustainability in free trade agreements? Here's our assessment.

The Action Plan sets out 20 points of action covering early identification of country-specific challenges and implementation priorities, mainstreaming sustainability throughout FTAs, monitoring of implementation, reinforcing civil society, bolstering enforcement, as well as ensuring TSD Chapters foster cooperation between trade partners. The European Commission appears to have taken a holistic approach to reinforce the effectiveness of the TSD Chapter through the above-mentioned avenues. This preliminary assessment highlights some of the key outcomes of this Action Plan and identifies where some blind spots remain.

The Commission’s communication introduces for the first time a tailored approach to the TSD Chapter based on a more comprehensive impact assessment, supported by civil society throughout the process. This is key to identifying and taking up country-specific environmental priorities into the TSD Chapter. Moreover, on the basis of this assessment, and where deemed appropriate, the Commission would seek, to negotiate implementation roadmaps, including timeline and milestones, to be integrated as FTA TSD provisions and followed up on.

To ensure these roadmaps deliver as intended, a proper monitoring framework must be set in place. To this end, the Commission intends to utilise existing expertise, and available instruments and programmes to facilitate the monitoring of TSD Chapter implementation, while expanding on the number of stakeholders to be involved in the process. This encompasses EU Delegations, the FTA Domestic Advisory Groups (DAGs), Member States, and a stronger role of the European Parliament notably through its INTA Committee monitoring groups. Furthermore, the Action Plan envisages a strengthened role for civil society, both in the EU and the trade partner country.

In order to facilitate civil society engagement in the monitoring process of TSD Chapter implementation, the Commission plans to revise the Operating Guidelines for the Single Entry Point (SEP). The aim is to clarify such questions as who can file a complaint, how to file a complaint or how complaints will be handled. The revised guidelines also introduce for the first time a timeline for the Commission to treat TSD complaints which should incentivise stakeholders to make use of the instrument. The SEP Guidelines also specify that the DAGs can file collective complaints, thereby better representing the interests of a party located in a partner country. The publication of these revised guidelines along with the TSD Action Plan provide a comprehensive framework for addressing gaps in TSD Chapters implementation.

Beyond taking action to cement the right of civil society to lodge a complaint on the violation of TSD Chapter commitments, the Commission sets out several action points to reinforce the role of civil society in the FTA process. Firstly, by ensuring civil society consultation forms an integral part of the FTA lifecycle, from gap-analysis to implementation, and by increasing the number of civil society dialogues for trade agreements.

Moreover, the Domestic Advisory Groups – tasked with monitoring TSD Chapter implementation – will receive resources for their logistical support, capacity building and functioning. Importantly, the Commission seeks closer cooperation between EU DAGs and the TSD Member States’ Expert Groups, as well as with the partner country DAGs.

Last, but certainly not least, the Commission aims to strengthen the enforcement of TSD commitments, including trade sanctions as a last resort thus partly addressing the toothlessness and lack of outcome-oriented approach of the current TSD dispute settlement mechanism.

The European Commission aims to alter this by aligning the TSD enforcement with the general state-to-state dispute settlement (SSDS), allowing for the party in violation to inform how it plans to implement the panel’s decision in a specified timeframe. Going further, the Commission proposes the possibility of trade sanctions as a last resort, such as violations of the International Labour Organisation (ILO) fundamental principles and the Paris Agreement. These sanctions will most likely take the form of suspension of trade concessions, as quantifying failures to protect the environment in monetary terms remains an issue. The implementation of sanctions would follow the expert panel’s decision and further failure from the violating party to bring itself into compliance.

Overall, the TSD Chapter Action Plan is ambitious and introduces for the first-time concrete enforcement mechanisms for EU FTAs to foster sustainability in trade partner countries, yet some blind spots remain unaddressed.

On monitoring aspects, the Commission intends to use “all available instruments to monitor the implementation of TSD commitments”. Our recent policy report highlights that existing instruments may prove ineffective to ensure the actual impact of TSD on sustainability in trade partner countries. For this reason, action points five and eleven are among the most decisive, as they effectively bring concrete enforcement mechanisms to the table.

Furthermore, there is nothing taken up to account for the evolving nature of environmental and labour standards in FTAs. Specifically, there is no wording on a “ratchet up” mechanism or a trigger clause to ensure FTAs are susceptible to an ever-changing environmental reality.

Another blind spot is the absence of pre-agreement efforts in the scoping phase of trade negotiations which would commit parties to implement certain national policy frameworks pertaining to sustainability, to be implemented irrespective of the results of the negotiations.

Lastly, the Action Plan specifies that the action points related to the implementation of TSD commitments and reinforcing the role of civil society can be immediately deployed into existing trade agreements. In that regard, some of the most ambitious points of this communication such as the mainstreaming of sustainability, tailor-made approach to the TSD Chapter and outcome-oriented dispute settlement aligned with SSDS, will not be back-cast onto existing agreements.

In conclusion, the new TSD Chapter Action Plan sets a course for embedding sustainability in FTAs, by introducing new measures and mechanisms to ensure trade delivers sustainable outcomes. Yet, some blind spots related to monitoring efficacy, and the evolving nature of trade and environmental concerns, remain.

Below is a table summarising the policy recommendations from our latest policy report, as well as our assessment of the extent to which the new TSD Chapter Action Plan aligns with our recommendations:

Anticipating the implementation of the Action Plan

The European Commission now commits to propose the new TSD Chapter Action Plan for all future negotiations, while it is to be reflected in the ongoing negotiations "as appropriate". Several trade negotiations are indeed ongoing and at various stages of completion which will impact the capacity of the Commission to integrate this new approach in its negotiating strategy. The FTA negotiations with Australia and New Zealand for instance are almost complete which will leave little room for improvement. Discussions are also ongoing with MERCOSUR countries on a side letter or addendum to the FTA to break the deadlock and convince the EU Parliament to ratify the deal. How will this new approach be factored in these processes remains an open question.

Last, the Commission is engaged, or about to engage, with two partners where sustainability concerns are of global importance i.e. Indonesia and India. On the latter, both parties indicated their willingness to conclude the negotiations before the end of 2023 which seems extremely ambitious and raises concerns on the willingness to conduct "better-targeted impact assessments on TSD, with a view to identifying country-specific sustainability priorities and providing detailed analyses of impacts early on" as per Action Point n°4.

The new TSD Chapter Action Plan paves the way for improved consideration of sustainability concerns in EU FTAs processes, now is the time to make good with these commitments and deliver meaningful impacts in our trade negotiations and agreements.