The Trade-Environment Linkage in the EU-Japan Economic Partnership Agreement

Photo of Aakriti Bhardwaj

Aakriti Bhardwaj, PhD Candidate, University of Nottingham

Abstract: The EU’s trade policy aims to ensure that economic development goes hand in hand with sustainable development. To this end, EU FTAs contain commitments to respect multilateral environmental agreements and uphold environmental standards under all circumstances in its trading relationship with partner countries. Most recently, this can be seen in the context of the EU-Japan Economic Partnership Agreement (EU-Japan EPA) that has come into force. As expected, the agreement contains dedicated provisions on environmental protection in a chapter on trade and sustainable development. It is expected that the EU will work closely with Japan on climate change as well. This post analyses the environmental provisions of the EU-Japan EPA and contemplates whether it represents a step forward on trade and environment linkages.

 

 

Introduction

Not only have free trade agreements (FTAs) increased in number, several FTAs are increasingly including provisions on environmental protection (rtais.wto.org, 2019).The practice to cover these provisions is a prominent feature of the FTAs signed by the European Union (EU). The European Commission (EC) affirmed its renewed focus on trade and sustainable development and consequently, environment in all “new generation” FTAs negotiated by the EU after 2006.Realising its role as a powerful player in global economic governance, the EU has stated the inclusion of clauses on sustainable development as a pre-requisite for signing FTAs with trading partners.

In 2017, the EC had launched a debate inviting feedback on how to better implement and enforce the trade and sustainable development chapters (TSD Chapters) in EU FTAs. Based on the inputs collected, in 2018 the EC identified priority areas for future FTAs under a set of  “Action Points” directed towards (i) ensuring that countries comply with their commitments through more assertive enforcement; (ii) facilitating the monitoring role of civil society and (iii) making EU resources available to support the implementation of the TSD chapters (Non-Paper of the Commission Services, 2018). The Action Points mention that Japan is a key Asian trading partner for promoting responsible supply chains to advance responsible business conduct approaches as well as action on climate change.3

In this post, I discuss the trade-environment linkage in the context of the most recent EU FTA, the Economic Partnership Agreement between the EU and Japan (EU-Japan EPA), that entered into force on 1 February 2019. Based on the provisions of the TSD Chapter of the agreement and the Action Points communicated by the EC, I intend to unpack the legal and institutional framework on environmental protection under the agreement and present a brief analysis.

The legal and institutional framework on environmental protection under the EU-Japan EPA

The EU addresses the trade and environment linkage in its FTAs by focussing on the intersection between international trade law, international environmental law and transnational governance. There are several chapters that incorporate provisions of the World Trade Organisation (WTO) agreements mutatis mutandis which are relevant for environmental protection and discussed in this post further below. The Preamble to the EU-Japan EPA states that the Parties are ‘building on their respective rights and obligations under the WTO Agreement’. Under the TSD Chapter, the Parties reaffirm their commitment to effectively implement in their laws, regulations and practices the multilateral environmental agreements they are signatories to.The element of transnational governance is introduced by the cooperation-based mode of governance that the EU promotes through the TSD Chapter. This mode of governance comprises a dialogue-based implementation of environmental standards and characteristically creates a mechanism for participation of the civil society.

The TSD Chapter of the Agreement (Chapter 16) reiterates the commitment of the Parties to the multilateral environmental agreements (MEAs) signed by them including, for the first time, the Paris Agreement on Climate Change (the Paris Agreement).The specific provision merely reaffirms the commitment of Parties to the Paris Agreement and thus the call for ‘stronger and more detailed provisions’ in the TSD Chapter in the EU-Japan EPA in accordance with the Action Points appears unrequited. The Parties undertake to strive to facilitate trade and investment in (1) environmental goods and services (EGS) (2) goods and services that are of relevance to climate change mitigation and/or (3) manufactured under eco-labeling schemes. The Parties recognise the importance of encouraging sustainable business practices as under the OECD Declaration on International Investment and Multinational Enterprises, 1976 and the ILO’s Tripartite Declaration of Principles concerning Multinational Enterprises and Social Policy, 1977.6

The 3rd EU-Japan Corporate Social Responsibility (CSR) Business Dialogue Meeting held in November 2018 placed reliance on the TSD chapter for directing action on supply chain sustainability and the sustainable development goals adopted along with the 2030 Agenda (eu-japan.eu, 2018). In this respect, the provisions appear theoretical and imprecise as ‘climate change’, ‘EGS’ and ‘CSR’ are neither interlinked nor is the phrase ‘global value chains’ mentioned in reference to these terms in the TSD chapter. This weakness may have implications for subsequent provisions that contain obligations related to the promotion, conservation and sustainable use of biodiversity, trade in timber and timber products, fisheries and aquaculture as these sectors thrive on complex supply chains.The rationale for the inclusion of these provisions is understandable for the purpose of addressing pressing issues related to fisheries conservation, endangered species, forest governance and trade in environmental goods. Nevertheless, the provisions appear aspirational as a commitment to international legal instruments is reaffirmed but bears no precise obligations arising on account of the EPA. Further, there is no reference to transport (seaways and airways) in the context of environment although there are international legal instruments covering this subject matter.8  The agreement does not focus on the connection between trade, transport and the consequent increase in carbon dioxide emissions.

Perhaps the Parties intend to depend on dialogue along with the involvement of civil society organisations to develop frameworks in these areas. The civil society’s participation in the implementation of the TSD chapter may help in overcoming the democratic deficit in trade policy implementation that impact non-trade policy areas, such as the environment, by ensuring transparency. However, there is no scope for individuals to participate in the dialogue process or dispute resolution. The dispute resolution process remains restricted to the government-to-government level. At first, the Parties may request consultations. In case the Parties are unable to resolve the dispute, a panel of experts may be convened. The panel of experts is to issue a report containing key findings and suggestions. There is no reference to the applicable or procedural law except that the panel shall interpret the relevant Articles of the TSD Chapter in accordance with customary rules of interpretation of public international law, including those codified in the Vienna Convention on the Law of Treaties, 1969.

The report of the panel is non-binding and therefore ensuring compliance may prove challenging. The TSD Chapter is excluded from the scope of the Dispute Resolution Chapter (Chapter 21) applicable to disputes between the Parties concerning the interpretation and application of other provisions of the EU-Japan EPA.  This chapter allows for withdrawing concessions in case of breach of the agreement. The dispute resolution chapter is not applicable to environmental provisions under the TSD Chapter in EU FTAs but Opinion 2/15 of the Court of Justice of the European Union (CJEU) concerning the EU-Singapore FTA may provide guidance in this respect. The Court stated that for breach of the provisions concerning social protection of workers and environmental protection set out in the TSD Chapter, a Party may ‘terminate or suspend the liberalisation, provided for in the other provisions of the envisaged agreement, of that trade’.However, it has been pointed out that in practical circumstances Parties may be less enthusiastic and unsure on terminating or suspending an FTA over breach of provisions of the TSD Chapter (Ankersmit, 2017). It remains difficult to analyse if the framework on dispute resolution incentivises compliance on the part of governments and businesses. So far, the EU has requested consultations with its trading partner only once under the TSD Chapter (over labour commitments) of the EU-Korea FTA (the first “new generation” FTA to enter into force). The engagement on consultations is currently underway and an amicable and mutually satisfactory solution to the concerns raised is expected.

Other provisions on Environmental Protection in the EU-Japan EPA

The preamble to the agreement reiterates the commitment of the Parties towards sustainable development in their economic, trade and investment relations. There are also overarching provisions on transparency10 and regulatory cooperation11 aimed at guiding the governance of each Chapter of the EPA. While the TSD Chapter states the primary obligations substantively, it is predominantly policy-based which may be helpful in enhancing coherence with environmental provisions in other chapters of the FTA.

The chapter on Trade in Goods incorporates Article XX of the General Agreement on Tariffs and Trade through a General Exceptions clause securing domestic environmental laws and regulations.12This is also reflected in the chapter on Customs Matters and Trade Facilitation13 wherein customs legislation of the Parties may be based on legitimate policy objectives. For EGS, customs duties are applicable as per the tariff schedules agreed by the Parties and cannot be changed in violation of attached Annex 2-A.14 By virtue of adopting Articles 2 to 9 and Annexes 1 and 3 of the Technical Barriers to Trade Agreement, the Parties may prepare, adopt and apply technical regulations on environmental protection.15 The Agreement carries the general exception clause for trade in services (Article XIV, General Agreement on Trade in Services), investment liberalisation,16 subsidies necessary to achieve public policy objectives17and state-owned enterprises18 as well.

Conclusion

The structure of the TSD chapter arranges and informs about the substantive obligations of the Parties but only re-emphasises existing commitments under international legal instruments especially in the light of the Action Points identified by the EC. The civil society mechanism may assist in advocating on behalf of interest groups on environmental protection. However, it has a limited role to play in the dispute resolution mechanism which is weak also in the sense that it may produce only recommendations for the Parties to act on if accepted. Nonetheless, the chapter essentially establishes that the objective of the EU-Japan EPA is not to expand market access and investment at the cost of the environment. The provisions on environmental protection outside the TSD Chapter reiterate commitments undertaken at the multilateral level but will require active engagement on the part of the Parties to create horizontal coherence with the TSD chapter.

References

‘3rdEU-Japan CSR Business Dialogue Meeting | EU-Japan’ (eu-japan.eu, 2018) <https://www.eu-japan.eu/events/3rd-eu-japan-csr-business-dialogue-meeting>.

Agreement on Technical Barriers to Trade, 1868 U.N.T.S. 120

ECJ Opinion 2/15 Free Trade Agreement with Singapore of 16 May 2017.

‘EU Steps Up Engagement with the Republic of Korea over Labour Commitments under the Trade Agreement’ (Trade – European Commission, 2018) <http://trade.ec.europa.eu/doclib/press/index.cfm?id=1961>.

‘EU-Japan Economic Partnership Agreement’ (Trade – European Commission, 2019) <http://ec.europa.eu/trade/policy/in-focus/eu-japan-economic-partnership-agreement/>.

European Commission, ‘Commissioner Malmström Unveils 15-Point Plan to Make EU Trade and Sustainable Development Chapters More Effective’ (2018) <http://trade.ec.europa.eu/doclib/press/index.cfm?id=1803>.

Free Trade Agreement between the European Union and its Member States, of the one part, and the Republic of Korea, of the other part [2011] OJ L 127/6.

General Agreement on Tariffs and Trade 1994, Apr. 15, 1994, Marrakesh Agreement Establishing the World Trade Organization, Annex 1A, 1867 U.N.T.S. 187.

General Agreement on Trade in Services, Apr. 15, 1994, Marrakesh Agreement Establishing the World Trade Organization, Annex 1B, 1869 U.N.T.S. 183.

Morin J and Nadeau R, “Environmental Gems in Trade Agreements Little-known Clauses for Progressive Trade Agreements” [2017] CIGI Papers No. 148.

Ankersmit L, ‘Opinion 2/15: Adding Some Spice to the Trade and Environment Debate’ <http://europeanlawblog.eu/2017/06/15/opinion-215-adding-some-spice-to-the-trade-environment-debate/>.

Non-Paper of the Commission Services: Feedback and Way Forward on Improving the Implementation and Enforcement of Trade and Sustainable Development Chapters in EU Free Trade Agreements (2018). <http://trade.ec.europa.eu/doclib/docs/2018/february/tradoc_156618.pdf>

Report on Implementation of EU Free Trade Agreements (European Commission 2017).

‘The Paris Agreement | UNFCCC’ (unfccc.int, 2019) <https://unfccc.int/process-and-meetings/the-paris-agreement/the-paris-agreement>.

The Role of Trade in Ending Poverty (The World Bank and The World Trade Organization 2015).

‘Transforming Our World: The 2030 Agenda for Sustainable Development’ (sustainabledevelopment.un.org) <https://sustainabledevelopment.un.org/post2015/transformingourworld>.

World Economic Situation and Prospects (United Nations 2018) <https://www.un.org/development/desa/dpad/wp-content/uploads/sites/45/publication/WESP2018_Full_Web-1.pdf>.

‘WTO | Environment – Relevant WTO Texts’ (wto.org) <https://www.wto.org/english/tratop_e/envir_e/issu3_e.htm>.

‘WTO | Regional Trade Agreements’ (rtais.wto.org, 2019) <http://rtais.wto.org/UI/PublicMaintainRTAHome.aspx>.

WTO Agreement: Marrakesh Agreement Establishing the World Trade Organization, Apr. 15, 1994, 1867 U.N.T.S. 154.

Endnotes

[1] The WTO is required to be notified by Members signing FTAs. For a complete database see ‘WTO | Regional Trade Agreements’ (rtais.wto.org, 2019). Further, there are different types of environmental clauses such as those related to trade-related environmental protection, development of domestic environmental standards and governance see Morin J and Nadeau R (2017)

[2] “New Generation” FTAs typically go beyond tariff cuts and trade in goods. They also cover services and public procurement. Trade and Sustainable Development Chapters comprising obligations on labour and environmental standards are a core part of these agreements. See Report on Implementation of EU Free Trade Agreements (European Commission 2017)

[3] See points 5 and 12, Non-Paper of the Commission Services (2018)

[4] Article 16.4.2, EU-Japan EPA

[5] Article 16.4.4, EU-Japan EPA

[6] Article 16.5, EU-Japan EPA

[7] Articles 16.6-16.8, EU-Japan EPA

[8] The Paris Agreement is not applicable to carbon dioxide emissions attributed to international shipping and aviation. The environmental regulation of international shipping and aviation has been entrusted to the International Maritime Organization (IMO) and the International Civil Aviation Organization (ICAO), respectively see World Economic Situation and Prospects (United Nations 2018)

[9] See Paragraph 161, ECJ Opinion 2/15, Free Trade Agreement with Singapore(16 May 2017)

[10] Chapter 17, EU-Japan EPA

[11] Chapter 18, EU-Japan EPA

[12] Article 2.22, Chapter 2, EU-Japan EPA

[13] Chapter 4, EU-Japan EPA

[14] Article 2.8, EU-Japan EPA

[15] Article 7.3, EU-Japan EPA

[16] Article 8.3, EU-Japan EPA

[17] Article 12.9, EU-Japan EPA

[18] Article 13.8, EU-Japan EPA