SUSTAINABILITY STANDARDS UNDER EU-FTA'S: IMPLICATIONS FOR ASIAN ECONOMIES

Sustainability has become a key priority in the global trade landscape, The European Union
beginning with its agreement with Singapore has increasingly emphasized the inclusion of
environmental and labor standards within its Free Trade Agreements.1 As sustainability factors gain
prominence in trade policy, there are growing concerns that these standards may disproportionately
impact Asian economies, potentially creating new forms of discrimination.

Key to this is issue is the promotional approach followed by the European Union in its sustainability
chapter, wherein unlike US and Canada, the European Union has not followed a sanctions-based
approach.2 Even though the dispute mechanisms are consultative under the sustainability chapter,
developing states have seen them as non-tariff-based barriers and Asian countries are reluctant to
these consultative dispute resolution measures as it is seen as an attack on National or regional pride,
and Sovereignty.3

The rise of new generation of EU FTAs has strengthened the partnership between trade and
sustainability through a chapter on Trade and Sustainable Development but inclusion of the
following components, [A] Labour Standard Obligations, [B] MEA, [C] Domestic Regulation, and
[D] Sustainable Development, can be discriminatory and create challenges for the Asian economies.

A. Labour Standard Obligations

The European Union has made efforts to incorporate the core principles and ILO Conventions, it
has done so with the following approaches;

i. Creating a best effort obligation.

Sample Clause- “The Parties will make continued and sustained efforts towards ratifying and effectively
implementing the fundamental ILO conventions, and they will exchange information in this regard. The Parties will

1 Chapter 12, Free Trade Agreement Between The European Union And The Republic Of Singapore, Official Journal
Of The European Union.
2 Ludo Cuvyers, “The Sustainable Development Clauses in Free Trade Agreements: An EU Perspective for ASEAN?”, p. 24.
3 Id.
also consider the ratification and effective implementation of other ILO conventions, taking into account domestic
circumstances. The Parties will exchange information in this regard”4

This highlights the first approach to address the uniformity of fundamental legal standards by
making efforts to incorporate the core principles and ILO treaties. It doesn‟t create a result
obligation rather creates a best effort obligation5, but in addition to moral suasion it also has legal
hindrances for the Asian economies.

In the EU-Korea dispute, the dispute settlement panel, primarily evaluated if there existed
violation of the principle of association under the ILO convention which Korea had not ratified, in
doing so it saw if there were efforts made to work towards such ratification, and held no violation in
that regard as there were no timelines set under the FTA.6

ii. Persuasion through political alternative

Another aspect to be considered is, while these obligations might not be binding, in order to give a
concrete colour to these provisions European Union has followed a political alternative like with
Vietnam7, where it insisted the partner nation to ratify certain conventions before it ratified the FTA
and brought it to conclusion.

Considerations for India- India although has made best efforts for ratification of C-87 & C-98 by
making them a key priority and seeking assistance, but Government of India has been clear about its
reservation to not ratify Freedom of Association and Protection of the Rights to Organise
Convention, and Right to Organise and Collective Bargaining Convention.8 Thus the government
would have to find a way to balance, first, the requirement to make efforts to incorporate such
principles and thus ratify the conventions, and second its forthright stance to not violate its
domestic laws and practices by following such conventions.

iii. General Principle obligation

4 Supra note 1, Article 12.3(4).

5 MarcoBronckers and Giovanni Gruni, “Retooling the Sustainability Standards in EU Free Trade Agreements”, p. 26.
6 Report,Panel of Experts Proceeding Constituted under 13.15 of the EU-Korea Free Trade Agreement, adopted 20

January 2021, para 291.

7 Supra note 5, p. 27.
8 India and ILO, available at; gyanesh.pdf (labour.gov.in).
Sample clause- “seek to respect, promote, and realise fundamental principles”9

EU has imposed such labour rights on Asian countries through another clause under which the
parties have obligation to uphold principles inherent in ILO membership and key ILO Declaration.10

In the EU-Korea dispute, even in the absence of ratification of particular conventions dealing with
the right to association. the panel read these general obligations as hard and binding. 11Thus, it was
held that Korea had infringed the principle of freedom of association and was in violation of the
FTA.

In conclusion, the EU FTAs with Asian economies include provisions to incorporate international
labour standards and such action is discriminatory against the economies as, developing countries
have always rejected such links to be made between trade and workers right, because this allows the
developed and rich economies to justify protectionist measures against foreign competition by
alleging their rivals abuse workers‟ rights.12 But the FTA imposes on these nations‟ inherent
principles of labour conventions or the conventions itself which are otherwise voluntary in nature.

As a matter of result, the EU-Japan FTA may potentially have a detrimental impact on the gender
gap in employment in Japan, particularly in sectors such as processed food, retail, wholesale, and
services, where the risk of unemployment for women due to increased liberalization is high.13

B. Multilateral Environment Agreements

Sample Clause- “The Parties shall effectively implement, in their respective laws, regulations or other measures and
practices in their territories, the multilateral environmental agreements to which they are party.” 14Moreover, there
might be specific commitments as “to effectively implementing the UNFCCC, its Kyoto Protocol, and the Paris
Agreement.”15

Primarily, commitments such as NDC‟s are firmed up by the FTA16 as now the parties agree to
effectively undertake them, thus removing the voluntary nature of obligations made under

9 Supra note 5, p. 28.

10 EU-korea report, paras 120–22, at 196–97.
11 Id.
12 Matthias Busse, Do Labor Standards Affect Comparative Advantage in Developing Countries?, p. 1.
13 Sarah, Herman, “The Eujepa, Expectations And Realities Of A “New-Generation FTA”, p. 44.

14 Supra note 1, Article 12.6(1).

15 Ibid, Article 12.6(3).
16 Article16.4(4)EU–JapanFTA; Article13.6EU–Vietnam FTA; Article12.6(3)EU–Singapore FTA.
multilateral environmental agreements.17 And the parties will have to therefore, demonstrate that
they are moving towards their stated goals. But there exists inherent discrimination against
developing economies by including such link between trade and MEA because

i. The case of non-signatories

It makes it difficult to regulate relationships with trade partners who are not signatories to such
MEA‟s.18 For example the Asian economies are at a disadvantage when compared to USA, as not
being a part of the Paris Agreement it has zero obligations therein.

ii. Lack of support

The contracting parties are obligated to enforce the MEA‟s but the clause involved doesn‟t have any
impact on 3rd party actions essential for the developing countries to fulfill its part under the MEA.
19
That is, there exist no obligation as to transfer of technologies and financial incentives to the less
developed which are considered vital for implementation of the MEAs.

iii. Restriction of market access

MEA‟s restrict market access and have negative impact on the developing economies. It leads to
different consequences for different nations through restrictions and prohibition. 20There are about
20 of these agreements which include provisions that can affect trade. For instance, they may
contain measures that prohibit trade in certain species or products, or that allow countries to restrict
trade in certain circumstances.21

In conclusion, the FTA can be discriminatory on the front of environmental sustainability, and thus
precautionary care can be paid on the abovementioned issues. To ensure parity with non-signarories
in the areas of trade, commitments under the FTA should be made only for those conventions like
the Montreal Protocol wherein trade with non-signatories are not permitted. In addition to this, the
violation of MFN and NT by MEA‟s is a big concern and the FTA can bring in obligations to such
documents, thus incorporating discriminatory practice.

17 BenoitMeyer,„Obligations of Conduct in the International Law on Climate Change: A Defence‟, 27 Review of

European Comparative and International Environmental Law 130 (2018).
18 Multilateral Environmental Agreements and the Trade Measures Contained in These Agreements, CES Working

Papers, IV, (2), 2012, p. 261.

19 Id.
20 Tarasofsky, 2004, p. 4.
21 Relationship between WTO and MEA rules, can be accessed at; WTO | Environment - negotiations: MEAs.
A perfect example to this is EU‟s CBAM which aims to tax imports based on their carbon footprint,
while this is not just discriminatory in the sense that the Asian economies have not had the
opportunity to develop their economies without being constrained by environmental regulations. It
also highlights that even if India is on track of achieving its goal, under the FTA it will mutually
respect the EU‟s goals and its method to achieve such goals.

Moreover, the mandate of compliance with CBAM should also be read with clauses in the TSD
chapter which reiterates the commitment of the international community to stabilize the
atmospheric concentration of greenhouse gas emissions (GHG).22 Like “It reiterates the commitment of
the international community to stabilize the atmospheric concentration of greenhouse gas emissions (GHG) under 2°C
and to reinforce the global defense against the menace of climate change”

C. Domestic Regulations

Sample Clause- “A Party shall not waive or otherwise derogate from, or offer to waive or otherwise derogate from,
its environmental and labour laws, in a manner affecting trade or investment between the Parties.”23 And;

“A Party shall not fail to effectively enforce its environmental and labour laws, through a sustained or recurring course
of action or inaction, where such failure to effectively enforce would affect trade or investment between the Parties.”24

These are the two typical commitments to uphold the level of protection, one is the non-regression
clause and the other one is the non-enforcement clause. It encompasses both situations wherein
there are international commitments attached and where there are not. For the degradation of the
former one, an economic test linking an impact on the trade and investment is not required. But, in
the case where there are no international commitments then a link with trade and establishment is
required to establish derogation.25

The problematic language for the Asian economies starts from the point after when one of the
above two conditions is established, then comes the intention language26 under which when there

22 Japan-EU
23 Supra note 1, Article 12.12(1).
24 Ibid, Article 12.12(2).
25 Supra note 5, p. 30.
26 EU-Indonesia FTA, „Text of the EU proposal for a Sustainable Development Chapter Art. X.2‟, https://

trade.ec.europa.eu/doclib/docs/2017/september/tradoc_156111.pdf.
has been derogation but there are no impacts, if shown that there was intent to effect the trade and
investment the party can be held liable.27

In conclusion, while these provisions prevent a race to the bottom but such language constrains
trading partners especially developing nations going through hard times. That is, it ignores the
fluctuating political, social and economic condition of such states.

For instance, because of the non-regression clause, Indonesia‟s FTA with European Union wouldn‟t
have allowed Indonesia to grant temporary or industry-specific waivers or derogations from its
general labour laws like it did before the FTA during the Covid Pandemic28 and instead would have
to follows standards set therein, which as per the European Commission, “would increase wages in
Indonesia, contribute to the advancement of human rights, be carbon efficient and create growth in
trade and output.”29

D. Sustainable Development

“The Parties shall strive to facilitate and promote trade and foreign direct investment in environmental goods and
services, including environmental technologies, sustainable renewable energy... including through addressing related non-
tariff barriers.”30

These clauses are included to encourage trade and investment promoting sustainable development.
From the side of EU, the policy framework to promote the use of renewable energy sources is the
Renewable Energy Directive.

The impact of such measure has been historically seen as the exclusion of Malayasia‟s palm oil from
tax credit under RED, increased the tensions between the parties during the FTA negotiations.31 EU
questioned the sustainability of palm oil biofuel on the basis of criteria such as biodiversity losses
triggered by the deforestation that takes place when a tropical rainforest or peat-swamp forest is
reassigned to oil-palm cultivation. These standards were being questioned despite, Malaysia‟s

27 RubenZandvliet,„Trade,InvestmentandLabour:InteractionsinInternationalLaw‟(PhDthesisdefendedat the University of

Leiden, Leiden), https://scholarlypublications.universiteitleiden.nl/handle/1887/68881 215.
28 Stefania Palma,„Indonesia‟s Parliament Passes Sweeping Reform Bill‟, Financial Times, 5 October 2020.
29 European Commission, Impact Assessment (SIA) in Support of Free Trade Agreement (FTA) Negotiations between

the European Union and the Republic of Indonesia: Final Report (Luxembourg: Publications Office of the European
Union, 2019), can be accessed at; https://trade.ec.europa.eu/doclib/docs/2020/ july/tradoc_158901.pdf.
30 EU-Korea FTA, Article 13.6(2).
31 Ludo cuvyers p.25.
membership at the Roundtable on Sustainable Palm Oil and therefore the compliance therein, just
because of their different opinion in view of palm oil as a biofuel source.32

In conclusion this highlights a lack of policy autonomy for the Asian nations as European standards
are being imposed and the capacity to comply of such nations is being disregarded.

32 Id.