Opinion 2/15: Adding some spice to the trade & environment debate

By Laurens Ankersmit

Opinion 2/15 might keep legal scholars, practitioners, and policy-makers busy for the foreseeable future. Many aspects of the ruling deserve comment and further discussion (see already for starters the blogposts here, here, here, here, here, and here) and I would like to follow up my previous post with some comments on an intriguing paragraph of the Opinion: paragraph 161 on the possible suspension of the agreement for a breach of one of its ‘sustainable development’ provisions. The ECJ’s statements here touch upon a long-standing debate whether labour and environmental provisions in trade and investment agreements should be enforceable. The ECJ found that Parties could indeed (partially) suspend or even terminate the agreement for breaches of such provisions. Practicalities aside, this finding is certainly a positive step from a social and environmental point of view.

Background on the trade and environment debate

As part of a much wider debate on trade and environmental/labour protection, progressive voices have long argued that environmental and labour provisions in trade agreements should be properly enforceable, meaning that non-compliance should have foreseeable consequences. The idea behind reinforcing these provisions is that trade should not be an end in itself, but a means to an end – or at the very least that an economic relationship should not be unconditional. Such an approach is of course not unlike the foundations of the European Union itself which also aspires to greater goals through economic integration.

The EU institutions have nonetheless opted for what has euphemistically been labelled a ‘cooperative’ rather than a more ‘punitive’ approach towards environmental and labour issues in trade agreements. This approach ensures that while investment and trade provisions have strong enforcement mechanisms, ‘differences’ over the implementation of the sustainable development chapters can only be resolved through consultations and non-binding recommendations of a Panel of Experts.

However, it appears that the ECJ has added a new twist to the story which may increase the enforceability of these chapters.

Paragraph 161: applying the essential elements doctrine to chapters on sustainable development

In its Opinion 2/15, the Court, unlike AG Sharpston, found that the entire sustainable development chapter (Chapter 13) in the EUSFTA fell within the scope of the common commercial policy. In reaching this conclusion, the Court made the following statement (para. 161):

“Finally, the link which the provisions of Chapter 13 of the envisaged agreement display with trade between the European Union and the Republic of Singapore is also specific in nature because a breach of the provisions concerning social protection of workers and environmental protection, set out in that chapter, authorises the other Party — in accordance with the rule of customary international law codified in Article 60(1) of the Convention on the law of treaties, […] — to terminate or suspend the liberalisation, provided for in the other provisions of the envisaged agreement, of that trade.”

For the Court, therefore, non-compliance with provisions in this chapter could constitute a material breach of the agreement. Indeed, the Court considers that the sustainable development chapter ‘plays an essential role in the agreement’ (para. 162) and that the agreement operates under a form of conditionality ‘by making liberalisation of that trade subject to the condition that the Parties comply with their international obligations concerning social protection of workers and environmental protection’ (para. 166).

This conditionality approach is quite similar to how the EU has dealt with human rights issues in trade agreements in the past, although such clauses have their own specificities. There, respect for human rights is considered an essential element of an agreement for which a violation constitutes a material breach of the agreement. Sometimes such an essential elements clause is linked to a non-execution clause (see this informative piece by Lorand Bartels on the issue) which explicitly allows a Party to suspend (part of) or terminate an agreement for a material breach.

In the case of the EUSFTA, there is no specific suspension clause (similar to article 15.12 (2)) for the sustainable development chapter. Article 13.16 (1) states that

“in  case  of  disagreement on  any  matter  arising under  this  Chapter,  the  Parties  shall only  have  recourse  to  the  procedures  provided  for  in  Article  13.16  (Government Consultations)  and  Article  13.17  (Panel  of  Experts).  Chapter  Fifteen (Dispute Settlement)  and  Chapter  Sixteen  (Mediation Mechanism)  do not  apply  to  this Chapter.”

The fact that the EUSFTA does not explicitly allow for cross-suspension (for instance, suspending the reduced tariff rates for certain categories of imported goods in the event of a breach of one of the environmental provisions), did not deter the Court from finding that a breach of Chapter 13 could constitute a material breach of the Treaty and therefore authorising the Parties to suspend the agreement under international treaty law. This approach is broader than that of AG Sharpston, who did not consider international treaty law generally, but instead focussed on the internal rules of the EUSFTA. She therefore found that Chapter 13 could not result in suspension of the agreement because the EUSFTA did not explicitly provide for it (see para. 491 of the AG’s Opinion).

The Court’s findings might be justified with reference to article 17.13 of the EUSFTA. That provision allows both Parties to terminate the agreement. Implicitly, therefore the Parties would also be allowed to suspend the agreement (as it is less far-reaching). One could argue therefore that even if there is no explicit provision authorising the Parties to suspend the agreement for a breach of a provision in Chapter 13, it is undeniable that the agreement allows for termination (and implicitly suspension) generally. Consequently, Parties may terminate and suspend the agreement for any material breach, something the Court considers to be the case if a provision in Chapter 13 is breached.

Practicalities

The Court’s findings are significant as it may create an economic incentive for compliance with international social and environmental law and a recognition that the EU is trading on the basis of conditionality. This is certainly a positive first step from an environmental and social point of view.

However, certain practicalities regarding the actual decision to suspend an agreement may cause less enthusiasm. First, from an EU point of view, such a decision would require the adoption of Council decision following a proposal of the Commission on the basis of Article 218 (9) TFEU. A proposal by the Commission and a decision by the Council by qualified majority voting is likely not taken lightly and there may not be much appetite within those institutions to risk good diplomatic relations for social and environmental protection abroad. In relation to essential elements clauses, for instance, such a decision to partially suspend an agreement has only been taken once when the Council decided to partially suspend the Cooperation Agreement with Syria. The Court’s language might nonetheless suggest that such a decision is not entirely up to the political discretion of these two institutions by stating that ‘liberalisation of that trade [is made] subject to the condition that the Parties comply with their international obligations concerning social protection of workers and environmental protection’ (para. 166).

Second, it is not entirely clear when the Parties could suspend the application of the agreement. On the one hand, one could argue that simple notification of suspension would suffice. On the other hand, one could argue that there is a good faith obligation to resolve the issues first via the consultation procedures in article 13.16 and 13.17. The latter option would likely be preferred by decision-makers who already have difficulty starting such consultations in the first place. In that sense, it is not a good omen that the EU has never initiated consultations with a trade partner over social and environmental issues.

3 comments

  1. Kamen Chanov

    Wow, many thanks for this analysis, it was quite intriguing! Do you think that, in the event of a breach by Singapore of the social/environmental clauses of the EUSFTA, individuals that suffered direct damage could rely on this Opinion to argue that they have recourse to trigger the procedure for adopting a decision to terminate the agreement?

    • Laurens Ankersmit

      Dear Kamen, good question. Article 265 TFEU allows for proceedings before the EU courts for failure to act, but I think it would be difficult also considering that the EUSFTA has no direct effect (art. 17.15).

  2. Mihail Vatsov

    This is indeed quite insightful.

    What I find very interesting is the position of EU’s partners that have agreed to such TSD Chapters. I would speculatively imagine that they did not share the Court’s understanding about the consequences of not complying with the environmental and social standards included therein. If I am correct, future FTAs may include clearer language on the issue.

    Another thing worth thinking about is whether the Court’s pronouncement applies only to the environmental and social standards included in TSD Chapters, where they exist in EU agreements or whether it can be extended to any other modern trade agreements that the EU concludes that feature some sort of environmental and social standards.

    One further point in that regard is how do we define environmental standards. For example, are all fisheries governance-related provisions necessarily environmental. That is, does the division of competences play a role here?

    Just food for though, any ideas are welcome.

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