Shedding Light on the Role of the EU’s Chief Trade Enforcement Officer: Dispute Over Labor Commitments Under EU – Korea FTA and EU Enforcement Regulation

2 March 2020/ By

Chief Trade Enforcement Officer

As early as July 2019, Ursula von der Leyen, President of the European Commission (“Commission”), proposed a new role within the Commission to monitor the implementation of European Union’s (“EU”) trade agreements.  In particular, and in line with her announcement of an ambitious climate policy, the so-called “the European Green Deal”, in December 2019 to make Europe the first climate-neutral continent in the world by 2050, President von der Leyen confirmed that the EU’s efforts to enforce the sustainable development commitments of EU trade agreements would be further enhanced with the appointment of a Chief Trade Enforcement Officer. The Chief Trade Enforcement Officer would monitor and enforce environmental and labor protection obligations of EU trade agreements with third countries. The Commission officially created the post of Chief Trade Enforcement Officer on 12 December 2019, and the post is expected to be filled in early 2020.

At this point, however, it remains unclear who will be appointed as the first Chief Trade Enforcement Officer, and what exact role one in this position will play. So far, Phil Hogan, the Commissioner for Trade, stated during a hearing before the European Parliament in September 2019, that the Chief Trade Enforcement Officer will be at the level of Deputy Director-General of DG TRADE and broadly have authority to confront countries that are found to be in breach of the WTO Agreement and EU free trade agreements. Specifics are scant.

However, the on-going dispute between the EU and the Republic of Korea (“Korea”) over labor commitments under the EU – Korea Free Trade Agreement (“FTA”) and Regulation (EU) No. 654/2014 concerning the exercise of the EU’s rights for the application and enforcement of international trade rules (“Enforcement Regulation”) may shed light on the potential role of a Chief Trade Enforcement Officer.

Potential Role of the Chief Trade Enforcement Officer

The Chief Trade Enforcement Officer at the level of Deputy Director-General of DG TRADE would work based on a mandate from Phil Hogan, the Commissioner for Trade. Although the Chief Trade Enforcement Officer would be responsible for monitoring and enforcing third countries’ sustainable development commitments, the Chief Trade Enforcement Officer would represent the EU under the auspices of the Commission. In this regard, a new unit is likely to be created within DG TRADE to support the Chief Trade Enforcement Officer. Or, an existing unit in DG TRADE may be assigned with a new role to assist the Chief Trade Enforcement Officer to perform its mandates on behalf of the EU.

Further, the Chief Trade Enforcement Officer is expected to have authority to revisit environmental and labor obligations in trade agreements already in force (e.g., with Canada and Japan) and to bring complaints under dispute settlement provisions of EU trade agreements against third countries who appear to be in breach of their commitments. Such complaints may resemble the one raised by the EU in July 2019 against Korea pursuant to the EU – Korea FTA, as explained below. The Chief Trade Enforcement Officer could also have discretion to suggest the imposition of rebalancing duties against third countries that violate their obligations and, in accordance with Article 4(1) of the Enforcement Regulation, the Commission could adopt implementing acts imposing rebalancing duties following the recommendation from the Chief Trade Enforcement Officer.

In short, the Chief Trade Enforcement Officer is likely to have the following three main responsibilities in order to monitor and enforce the environmental and labor obligations under EU trade agreements: (i) monitor trade partners’ commitments under sustainable development chapters in EU trade agreements and produce monitoring reports; (ii) conduct consultations over alleged violations of trade partners and, if necessary, initiate dispute settlement procedures under EU trade agreements; and (iii) suggest the imposition of rebalancing duties or suspension of tariff concessions after a favorable ruling by an FTA panel.

1. Monitoring third countries’ commitments and initiating dispute settlement procedures under EU trade agreements

On the basis of the Commissioner for Trade’s mandate, the Chief Trade Enforcement Officer is expected to have authority to monitor trade partners’ sustainable development obligations and to initiate dispute settlement procedures under EU trade agreements. When the Chief Trade Enforcement Officer finds the breach of third countries’ sustainable development commitments, DG TRADE, Legal Service, or a new unit within the Commission supporting the Chief Trade Enforcement Officer may request consultations with third countries. If those consultations do not result in a mutually satisfactory resolution of the matter, the EU may proceed with panel proceedings, as provided under the sustainable development chapter in EU trade agreements. The Chief Trade Enforcement Officer is likely to supervise dispute settlement process.

Such disputes could resemble the one raised by the EU against Korea pursuant to the EU – Korea FTA. Chapter 13 of the EU – Korea FTA includes rules on trade and sustainable development, which oblige the EU and Korea to abide by international labor and environment standards and agreements. After raising its concerns that Korea fails to comply with its commitments on labor rights under Article 13(4) of the FTA, the EU requested formal consultations with Korea on 17 December 2018. The EU asserted that Korea’s measures, including provisions of the Korean Trade Union Act, appear to be inconsistent with Korea’s obligations related to multilateral labor standards and agreements under the trade agreement. Since formal consultations did not lead to the satisfactory outcome, the EU requested the establishment of a panel of independent experts on 4 July 2019. The EU and Korea completed the procedure for selecting the members of the panel on 19 December 2019. The panel was established on 30 December 2019 and is expected to deliver its report by the end of March 2020.

In fact, this is the first time that the EU has initiated dispute settlement procedures under a trade agreement to challenge the alleged violations of a trade partner’s sustainable development obligations. By creating the new post of the Chief Trade Enforcement Officer, the EU is expected to bring new complaints against non-compliant trade partners under dispute settlement procedures provided in the sustainable development chapter of EU trade agreements already in force (e.g., with Canada and Japan) and soon to be ratified (e.g., with Vietnam and MERCOSUR). The EU could unilaterally initiate dispute settlement procedures, since consultations must commence promptly after the EU delivers a request for consultations and third countries are obliged to respond to the EU request.

2. Suggesting to impose rebalancing duties

Moreover, the Chief Trade Enforcement Officer could have discretion to suggest the imposition of rebalancing duties or suspension of tariff concessions after a favorable FTA panel ruling. To effectively enforce the environmental and labor obligations under EU trade agreements, it will be crucial for the Chief Trade Enforcement Officer to have this function, because third countries could simply decide not to implement non-binding recommendations from an FTA panel. After the Chief Trade Enforcement Officer submits his or her suggestion to impose rebalancing duties, the Commission could subsequently adopt retaliatory measures that pressure non-compliant trade partners’ implementation.

However, it is controversial whether third countries’ non-compliance with sustainable development commitments under EU trade agreements would entitle the Commission, even after the recommendation from the Chief Trade Enforcement Officer, to impose rebalancing duties or to suspend tariff concessions.

In Opinion 2/15, the CJEU held that a breach of sustainable development commitments under EU trade agreements authorizes the EU, in accordance with Article 60(1) of the Vienna Convention, to terminate or suspend liberalization of trade (para. 161). However, AG Sharpston stated in the AG Opinion, even when a third country does not comply with its labor and environmental obligations, the EU cannot unilaterally suspend trade concessions, if the trade agreement – the EU – Singapore FTA in that case – does not explicitly provide this right to the EU (paras. 490 and 491). The Commission also pointed out in its submission that the sustainable development chapter under the EU trade agreement does not provide the possibility of imposing trade sanctions (para. 484).

As AG Sharpston and the Commission pointed out, the sustainable development chapter merely provides recourse to the Commission’s own dispute settlement mechanisms (first consultations and then panel proceedings where a panel of experts would issue non-binding recommendations) and does not provide any right for a party to suspend tariff concessions when another party is found to have violated its labor and environmental obligations. Thus, it appears that the EU’s imposition of rebalancing duties against third countries found to have breached their sustainable development obligations would be inconsistent with EU’s own commitments of trade liberalization under EU trade agreements. In other words, the EU’s imposition of rebalancing duties cannot be based on EU trade agreements.

At the same time, the Vienna Convention alone, as the CJEU indicated in its ruling, would not provide a sufficient legal basis for the Commission to impose rebalancing duties as a result of the third countries’ violation of sustainable development obligations. Article 60(1) of the Vienna Convention provides in a broad manner the termination or suspension of the operation of a treaty as a consequence of its breach. While the Vienna Convention is applicable to EU trade agreements in general and supports the EU’s decision to suspend tariff concessions, this would not empower the Commission directly to have such an authority. The Commission would need to rely on EU legislation.

Accordingly, the EU’s imposition of rebalancing duties after a favorable ruling by an FTA panel is likely to be based on the Enforcement Regulation. The Regulation specifically allows the EU to suspend tariff concessions and impose new customs duties after dispute settlement procedures. In fact, the EU adopted rebalancing duties in June 2018 against the United States in response to its Section 232 measures on steel and aluminium (in the context of safeguards) on the basis of the Enforcement Regulation.

After the Chief Trade Enforcement Officer suggests the imposition of rebalancing duties to the Commissioner for Trade, the Commission could adopt retaliatory measures. In particular, pursuant to Articles 3(b), 4(1) and 5 of the Enforcement Regulation, the Commission could adopt implementing acts imposing the appropriate “commercial trade policy measures” (e.g., rebalancing duties, suspension of tariff concessions) against third countries found to have violated their sustainable development commitments under EU trade agreements. Further, when the proposed revision of the Enforcement Regulation submitted by the Commission on 12 December 2019 is adopted, the Commission would be able to impose rebalancing duties even when third countries fail to appoint a panelist and there is no fallback mechanism foreseen for dispute settlement to proceed. This would broaden the grounds for imposing rebalancing duties.

However, this could also potentially raise tensions with trade partners who may consider challenging the EU’s rebalancing duties before the World Trade Organization (“WTO”) as a unilateral measure, inconsistent with multilateral trade rules.

Conclusion

Given the new Commissions’ emphasis on enforcement of sustainable development commitments for environment and labor as part of the EU’s trade agenda, it is all but certain that the Chief Trade Enforcement Officer will play a crucial role to achieve those goals. To effectively enforce the sustainable development obligations under EU trade agreements, it will be necessary for the Chief Trade Enforcement Officer not only to monitor third countries’ commitments and to initiate dispute settlement procedures, but also to suggest the imposition of rebalancing duties. In particular, a possibility to impose rebalancing duties under the Enforcement Regulation would allow the EU to pressure non-compliant trade partners to abide by their sustainable development commitments. While the actual imposition of rebalancing duties would risk legal challenge before the WTO, the EU may take a tough position to enforce the sustainable development commitments of its trade agreements.

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