Europe uses trade deals to push for climate change action

With the world’s attention absorbed by the US-China trade war, the EU had a fair try at upstaging the G20 summit 10 day ago by announcing that it had concluded two new free trade agreements. The deals with Vietnam and the Mercosur bloc, the latter heavy with symbolism given that it was signed 20 years to the day after the start of fraught talks, allowed Brussels to show off as the defender of the multilateral order amid Washington’s protectionist turn and Beijing’s increasing assertiveness.

The Mercosur deal illustrates “Europe taking the opportunity of the multilateral crisis to resolve an old issue”, says Iana Dreyer, founder of Borderlex, a news site for EU trade policy. While somewhat less ambitious than other recent trade deals in terms of how many tariff lines are reduced and how fast, it does involve politically difficult market opening, in particular for the European car industry and some Mercosur agricultural exports.

But EU trade policy aims further than mere market opening. The “very rules-heavy” deals allow Europe to “promote its model of international governance” by exporting its regulatory standards in the latest trade deals, says Ms Dreyer. She cited rules on cars, renewable energy, rules of origin, dispute settlement and protected geographic indications for food products as “the distinctive mark of EU free trade agreements”.

Brussels has also been keen to promote its trade policy as being particularly enlightened, vaunting provisions on labour rights and the environment. A case in point is a sustainable development chapter that will commit Mercosur countries to the 2015 Paris agreement on climate change and to action against deforestation. Given Brazil’s membership of the bloc, this is seemingly a big deal.

Some economists support the idea behind the EU’s inclusion of non-trade issues in such deals.

“Trade agreements are enormously beneficial and thus can be used as carrots or rewards if, in return, our partners can document transitions to sustainable practices and a moratorium on deforestation generally — not just for goods exported to the EU,” says Bård Harstad, an economics professor and expert on the political economy of environmental agreement. But that requires “bundling the two issues efficiently” — in other words using trade concessions as “the currency” with which environmental commitments are secured. “After all, the EU can threaten with nothing else than trade barriers if deforestation in the Amazon continues,” adds Mr Harstad.

But do the provisions have any bite? It is notable that while they are legal treaty commitments, the sustainable development provisions are excluded from the enforcement and sanctions that govern breaches of the trade policy parts of the agreements.

Philippe Lamberts, co-leader of the Green group in the European Parliament, says the EU has started to include sustainability provisions in its trade deals “because it’s fashionable”, but that without real sanctions they are “a joke”.

That may be a little harsh. Ms Dreyer argues that the new-style free trade agreements allow for political pressure on partners who renege on their social or environmental commitment. She points to Korea, which promised to ratify outstanding International Labour Organization conventions in the FTA it signed with the EU in 2011 but has still not done so. On the European Parliament’s goading, Ms Dreyer says, Brussels “triggered a quasi-judicial process” involving formal consultations and possibly expert panels. The hope will be that such political processes can shame partners into compliance.

The jury is still out, however, on whether this will be enough. If the European Commission cannot soon demonstrate convincingly that its approach to sustainable development in trade makes a difference in practice, it risks the embarrassment of visibly not living up to its own rhetoric at a time when trade has become highly politicised. More importantly, in the face of scepticism in the European Parliament, the commission could fail to pass and ratify new trade deals altogether — including those announced last month. At least the Greens, says Mr Lambert, will vote against both.