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Making trade agreements conditional on climate and environmental commitments

Mathilde Dupré & Stéphanie Kpenou, 20 June 2023

[English] [français]

While the EU is encouraging Member States to ratify a new set of trade agreements, notably at the EU-CELAC summit scheduled in mid-July, the Veblen Institute analyses in this note the extent to which this wave of agreements is aligned with international commitments to tackle climate change and protect the environment. The Veblen Institute puts forward concrete proposals for further progress in this area.

Trade can no longer be seen as an end in itself, with no regard to its negative impact on climate and biodiversity. By facilitating the production and trade of polluting products, current principles of international trade contribute to the development of an unsustainable economic model. In parallel, the concessions made by governments in trade agreements limit their ability to act in the face of the climate and environmental emergency.

Although the EU claims to have put its trade policy in the service of sustainable development with the inclusion of "trade and sustainable development" chapters in its bilateral agreements, the commitments they contain and their implementation have remained insufficient, because of their limited scope, reach and effectiveness. The European Commission undertook new commitments in its 2021 trade policy review and its new strategy for trade agreements in 2022.

It proposes to make compliance with the Paris Agreement "an essential component of future trade and investment agreements" and to “extend the possibility to apply trade sanctions in cases of failure to comply with obligations that materially defeats the object and purpose of the Paris Agreement on Climate Change or in serious instances of non-compliance with the ILO fundamental principles and rights at work”.

These two commitments clearly represent a step forward, but they still do not go far enough and in any case they have not been implemented in the agreements finalised with Mexico, Chile or the Mercosur countries. . This is why the Veblen Institute sets out in this note a series of proposals, based on a concept of conditionality, for a genuine paradigm shift in trade policy.

Within the framework of EU trade agreements, it is proposed to:

Elevate, in an effective manner, the fight against climate change and environmental protection to the status of essential elements in EU trade agreements.

Make tariff preferences conditional on compliance with sustainability criteria for environment- and climate-sensitive products.

The key principles of the WTO’s multilateral trading system should also be interpreted, or even revised, to allow states to legitimately discriminate against products on the basis of the sustainability of their production processes.

At the same time, investment protection remains a major issue. The agreements being renegotiated with Chile and Mexico, for example, provide for the protection of fossil fuel investments and are not in line with the European Commission’s approach to the modernisation of the Energy Charter Treaty and the European Parliament’s June 2022 resolution on the subject.

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