European Commission threatens sanctions against trade partners who fail to meet sustainability standards

The European Commission has unveiled a plan to “protect the climate, environment and labor rights worldwide” by introducing sharper teeth to the Trade and Sustainable Development (TSD) chapters of the EU’s trade agreements.

All the EU’s ‘modern’ trade agreements include chapters on trade and sustainable development based on a broad set of mutually agreed commitments. While mostly focusing on helping parties improve environmental standards, the planned changes would also open the door to sanctions for those who fail to meet standards in line with the Paris Agreement.

The new approach will be applied to future negotiations and ongoing negotiations as appropriate, the Commission said.

“We promised to make trade more sustainable and today we are delivering,” said executive vice-president and commissioner for trade, Valdis Dombrovskis. “Our trade agreements give us clout on the world stage and support economic growth and sustainable development – but as of now, we want to make them an even bigger driver of positive change. We will engage and support our partners to make this happen. will step up our enforcement, and we will resort to sanctions if key labor and climate commitments are not met.”

The EU Commission said it would now step up engagement with trade partners in “a cooperative process to foster compliance with international labor and environmental standards”, including through technical and financial assistance.

Under the proposals, the role of EU Domestic Advisory Groups (DAGs) would be enhanced, making it easier for both civil society and DAGs to lodge complaints on violations of sustainability commitments. The Commission has said it would provide increased resources for DAGs.

The standard state-to-state dispute settlement compliance phase of any agreement would also be extended to include TSD chapters so that the party found in violation of any of the TSD commitments will have to promptly inform the Commission how it will implement the panel report, and comply within a certain period of time.

As a last resort, the plan would enable the EU to apply trade sanctions for material breaches of the Paris Climate Agreement and the ILO fundamental labor principles.

Taken together, the Commission said the reforms would represent “a major step in making EU trade greener, fairer and more sustainable”.

The Commission said it would also work more closely with both Member States and the European Parliament to monitor and implement TSD commitments.

The move is part of a trend that has seen environmental and climate issues become an important feature of international trade agreements.

For example, in March the EU Commission launched a challenge against Britain at the World Trade Organization (WTO), claiming the UK’s proposals to assess levels of local content when handing out contracts to clean energy projects could the pace of the net zero transition.

Meanwhile, the EU, US, and UK are all currently exploring proposals for so-called carbon border adjustment mechanisms (CBAMs) that would impose carbon tariffs on imports from countries with lower carbon prices or more lax climate policy regimes. The tariffs are designed to ensure a level playing field for carbon intensive businesses, but some observers fear they could spark a trade war with large emerging.

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