The European Commission has released a ‘non-paper’ on how to bolster so-called trade and sustainable development chapters in EU free trade agreements. The EU’s aim is to improve and strengthen the current dialogue- and cooperation-based approach in enforcing labour and environment provisions in FTAs, and to introduce a stronger dispute settlement mechanism. A lively debate is ongoing on whether sanctions should be envisaged for non-compliance.
With a special emphasis on the issue of labour standards, Evita Schmieg runs through the main arguments in favour or against cooperation-based mechanisms or sanctions.
Long-term objective: Make ‘TSD’ chapters unnecessary
Trade and sustainable development chapters are needed because there is no way to ensure that trade is ecologically and socially sustainable. This is the logical consequence of production and consumption patterns based on prices that don’t reflect the real costs for societies.
This needs to be changed, and the internationally agreed Sustainable Development Goals show the way. TSD chapters are a second-best solution for now, but they shouldn’t draw political attention from the bigger challenge of organising production and consumption patterns in a sustainable manner. But can TSD chapters improve the situation in partner countries?
The International Labour Organisation found in a comprehensive study on the labour provisions in 260 FTAs that, apart from an impact on the labour force participation rate (sic!), there was little impact on labour markets in participating countries. One would not have expected this, anyway.
For the case studies, however, the ILO concluded that capacity-building, monitoring and stakeholder participation together led to institutional and legal change and, sometimes, better working conditions at the sectoral level. I could observe the same in my recent research on the inclusion of labour standards in Colombia’s FTAs.
Conditionality and sanctions
The US has on several occasions demanded legal changes regarding labour standards as a precondition for ratifying an FTA. This has generated some positive examples (using the same reasoning, the US withdrawal from the Trans-Pacific Partnership may have led to a breakdown of efforts to improve labour standards in Vietnam).
This illustrates that preconditions can lead to changes in the legal system or the ratification of international conventions even before an FTA enters into force. But followup and monitoring instruments are needed when an accord is being implemented to ensure that legal changes eventually improve the labour or ecological situation.
How important are sanctions in sustainability clauses of FTAs? The experience with trade sanctions so far isn’t encouraging. Only one case – a complaint against Guatemala under its FTA with the US – has gone to arbitration. After nine years, the panel decided that although Guatemala had violated labour standards, this violation wasn’t trade-related and sanctions weren’t possible. This outcome may not frighten other governments lacking the political will for improvement.
In any case, withdrawing trade preferences probably doesn’t bring about more sustainability in a partner country. Higher tariffs will diminish economic opportunities and may lead to unemployment, which worsens the labour situation in the sued country. Although this creates a level playing field and protects domestic producers from assumed unfair competition, the situation of workers and environmental conditions in partner countries doesn’t improve through trade sanctions.
Financial sanctions are another option, especially if the money flows into a fund that supports sustainability projects in the sued country. This system is included in the Canada-Colombia Labour Cooperation Agreement.
Monitoring as a challenge
Labour standards in FTAs have been successful when a specific plan of action was included that had to be followed by the partner country and whose implementation was linked to concrete monitoring and dialogue mechanisms. The US has taken this approach, with the Department of Labor playing an active role in implementation through regular missions, own research and dialogue with the partner government and labour institutions.
EU FTAs, with their general reference to ILO conventions, have been followed up through general dialogue within the agreement’s institutions. But serious monitoring demands resources: qualified personnel are needed for research and assessments, missions must be financed and carried out. Within the EU, more coordination would be needed because the European Commission is responsible for trade matters, while member states deal with labour and environmental issues.
Is it sensible for every bilateral trade deal to have its own trade and sustainability provisions? This raises two concerns:
… with regard to the content of sustainability requirements
Different bilateral FTAs may contain incoherent requirements, and there is a danger that bigger trade partners use – or rather, misuse – these pacts to push forward their own social and ecological standards. The only solution to this dilemma is for FTAs to refer to internationally set standards as reference points. The EU’s approach so far is exemplary, because it does exactly that. In view of a coherent agenda, it is absolutely necessary to stick to multilaterally agreed rules/standards/regulations.
… with regard to procedures
When each FTA has its own action plan, dialogue processes and monitoring procedures – as is the case today – heavy demands are placed on partner governments’ financial and administrative resources, because parallel structures must be set up.
A case in point is Colombia, which is engaged in an action programme on labour standards with the US, a Labour Cooperation Agreement with Canada, the TSD chapter of its trade deal with the EU and the European Parliament’s road map, as well as the road map on labour issues under the accession process to the Organisation for Economic Co-operation and Development. Each of these is linked to reporting procedures, meetings and conferences as well as missions from FTA partners/OECD, even though, luckily, the US action plan in those cases served as a reference point.
Modern trade policy may repeat the mistakes that development policy is trying to overcome. In 2005, donors agreed in the Paris Declaration on Aid Effectiveness that developing economies should define their own development paths, around which donor support should be aligned, better coordinated and simplified.
If trade deals expand into partner countries’ internal political processes – which have been part of development policy – they must stick to those same principles. In practice, this would demand that partners of trade agreements better co-operate and ideally align around one national program. In case of labour standards, this could be designed and implemented with the ILO’s support.
Long-term change needs civil society, political will and support
While political will is required for long-term improvements in ecologic and social sustainability, the needed changes cannot be brought about by the stroke of a pen or external action, pressure or rules. Institutions must be in place to ensure the effective implementation of laws and regulation in the long term.
Institutions for stakeholder dialogue with the government must be set up and working. The co-operation of stakeholders – including dialogue between trade unions and employers – must become normal and effective. The necessary institutions and long-term processes will often require the financial and technical support of trade and development partners. Dialogue processes and civil society can play an important role in supporting long-term change.
Conclusions for the EU
Chapters on trade and sustainable development can set an important incentive for improvements and help establish a framework for stakeholder dialogue and action. This means sustainability chapters must include a strong role for civil society. Future EU TSD chapters should introduce the possibility of financial sanctions to punish violations against sustainability provisions, with the funds used to improve sustainability of the sued country.
When it comes to possible implementation and monitoring systems, it will be crucial to look at the specific partner country situation to avoid coherence problems. In any case, implementation should be co-ordinated among trade partners and preferably linked to multilateral technical cooperation support.
Evita Schmieg (firstname.lastname@example.org) is a senior research scientist at the Berlin-based SWP Stiftung Wissenschaft und Politik, the largest German think tank on international and security issues.