Why the ongoing free trade agreement negotiations between the European Union and Australia and New Zealand are turning to be more difficult than expected. Iana Dreyer and Shana Takoor.
Negotiating a trade agreement with the EU is always an excruciating experience for any country involved.
The EU is large and has unwieldy institutions. Any country that is not big enough to resist Brussels’ regulatory steamrollering and is dependent on better market access to Europe’s large market cannot escape having to haggle about the adoption of regulatory standards which they don’t necessarily want or do not translate into law or action in the same manner as the EU.
This fact of life also applies to labour rights and obligations as regards environmental protection. And this also applies to countries where the issue is not so much a perceived need to ‘level up’ some of the partner country’s labour or environmental standards, such as economically and socially sophisticated New Zealand and Australia.
New Zealand and Australia are – each country individually – currently in a critical stage in their negotiations towards a free trade agreement with the EU.
A clash of models
With these countries the negotiation goes way beyond the issue of accessing each other’s markets on improved terms. In many ways, the fundamental issue is which free trade agreement ‘model’ ultimately prevails, with both sides proudly championing their own way of doing things.
One of the toughest parts of the negotiation is the so-called ‘TSD chapter’. This refers to the proposed so-called ‘Trade and Sustainable Development’ chapter in the agreement, which covers environmental and labour right commitments.
New Zealand and Australia are members of the Comprehensive and Progressive Transpacific Partnership or CPTPP, a trade pact among eleven Western Hemisphere and Asia-Pacific countries.
The CPTPP includes a series of obligations related to labour rights and environmental policy which largely echo what is included in recent EU free trade agreements. The way they do so differs, but there is much overlap on substance. The substantive overlap is meaningful in the area of labour rights.
The EU focuses on ensuring countries ratify and abide by the International Labour Organisation’s ‘core’ ILO conventions and adhering to the principles of other ILO declarations.
The CPTPP text for its part includes detailed language that gives precise indications what rights are to be enshrined and adhered to in domestic legislation. These obligations largely correspond to those enshrined in core ILO conventions and declarations, but do not explicitly name them. As the table below shows, very few CPTPP signatories have ratified the full body of ILO conventions.
EU, US and CPTPP member Core ILO Convention ratification status
|Conventions/Parties||EU||US - for reference||CPTPP signatories|
|No. 29||YES||NO||NO =
|No. 87||YES||NO||NO =
|No. 98||YES||NO||No =
|No. 100||YES||NO||NO =
|No. 105||YES||YES||NO =
|No. 111||YES||NO||NO =
|No. 138||YES||NO||NO =
For reference, the eight core ILO conventions are:
- Freedom of Association and Protection of the Right to Organise Convention, 1948 (No. 87)
- Right to Organise and Collective Bargaining Convention, 1949 (No. 98)
- Forced Labour Convention, 1930 (No. 29) (and its 2014 Protocol)
- Abolition of Forced Labour Convention, 1957 (No. 105)
- Minimum Age Convention, 1973 (No. 138)
- Worst Forms of Child Labour Convention, 1999 (No. 182)
- Equal Remuneration Convention, 1951 (No. 100)
- Discrimination (Employment and Occupation) Convention, 1958 (No. 111)
In the environment field, CPTPP priorities overlap less with that of EU trade agreement. Climate change, for instance, is not a priority. On the other hand CPTPP mandates a ban on fisheries subsidies, something the EU does not do in its FTAS;
There is a key difference between how CPTPP and the traditional EU FTAs handle disputes over labour and environment in their FTAS. CPTPP makes labour and environment provisions subject to the whole agreement’s dispute settlement system. This means that a breach of environmental or labour provisions could lead to “sanctions and remedies” as a last resort, and after a legal panel ruling. The remedies and sanctions are vaguely defined however.
In contrast the ‘standard FTA’ foresees a separate system to deal with disputes. It leaves it open what happens when a legal ruling finds that one party has been in breach of its environment and labour obligations. It is understood that no financial or trade sanctions are expected to be involved, that the dispute resolution follows diplomatic channels and that the partner will have the right to continue to benefit from the trade preferences enshrined in the FTA.
The EU-Vietnam FTA for example, states in article 13.17.9 that “the Parties shall discuss appropriate actions or measures to be implemented taking into account the final report of the Panel of Experts and the recommendations therein.”
The traditional EU approach to sanctioning breaches of labour and environmental provisions in its FTAs is evolving: such sanctions were introduced in in the EU UK Trade and Cooperation Agreement. But it has not adopted the approach across all ongoing FTA negotiations yet.
The trade link
Brussels has proposed to New Zealand that there be dispute settlement with the possibility of non-compliance becoming sanctionable.
Nobody ever doubted that New Zealand would sign on to these EU demands. And yet, ever since the spring 2021, there has been reticence from Wellington.
Clues to what lies at the heart of the disagreement with New Zealand was given by Ulrich Weigl, a head of unit agreements at the European Commission’s directorate-general for trade who oversees the sustainability aspects of bilateral trade agreements at a recent meeting with MEPs in the European Parliament.
“In our discussions, in our comparison we see where New Zealand is coming from. It is coming from the model of the CPTPP”, said Weigl.
“We see by comparison shortcomings both in the scope of the agreement and in the limitations that are put on enforcement notably that a violation has to be in a manner affecting trade and investment between the parties,” the Commission official said.
This matter came into sharper focus following the first panel ruling on labour in a ten-year-old FTA with the EU last January as regards Korea’s implementation of its International Labour Organisation commitments therein.
Korea had signed up to undertake its “continued and sustained efforts towards the ratification” of four out of eight so-called ‘core’ ILO conventions. The FTA text did not oblige Korea to actually ratify the agreements, let alone given it a deadline.
During the legal proceedings, Korea had fought back against the EU’s claims regarding a domestic law restricting access to labour union status for non-employed workers, arguing that the matter was not directly ‘trade related’. Korea referred to relevant language in the TSD chapter.
But January’s panel ruling dismissed the argument that compliance with core ILO principles is only a matter of concern for the FTA counterpart if it is not strictly trade-related.
Because the EU FTA and its preamble refer to a long list of international conventions including on labour rights, the panel argued there was a “framework of values identified by the Parties, including a recognition of the interconnectedness of economic, social and environmental matters.” This in turn binds Korea to abide by these treaties’ core principles, regardless of their trade dimension, the panellists concluded.
This finding clearly raised eyebrows in New Zealand and Australia.
In the negotiations, both countries want to stick to the CPTPP approach to these issues, which is that any penalties for non-compliance should be about matters that are directly related to the bilateral trade and investment relationship. On an informal basis diplomats say they consider not doing so would lead to too much encroachment on their domestic policies.
The CPTPP language on labour and environment indeed strongly emphasises the trade link.
Its chapter on labour says in Article 19.5.1: “No Party shall fail to effectively enforce its labour laws through a sustained or recurring course of action or inaction in a manner affecting trade or investment between the Parties after the date of entry into force of this Agreement.”
The environment chapter, for its parts prohibits any intervention on the other party’s enforcement activities. Article 20.3.7 7 for instance, says: “Nothing in this Chapter shall be construed to empower a Party’s authorities to undertake environmental law enforcement activities in the territory of another Party.”.
This is where Australia comes in.
Australia is extremely reticent at the idea of adding the 2015 Paris Agreement on climate change to the list of international treaties and conventions it needs to abide by in its future FTA with the EU. But for the EU not including the Paris Agreement is unthinkable at a time when it is rolling out its Green Deal.
The CPTPP does not include obligations related to the Paris Agreement although it includes other environmental obligations and language on the need for the parties to transition to a low-carbon-emissions economy.
Australia is a party to the Paris Agreement and has clear intentions to stick to it. But it rejects the notion that it should be somehow enforced via their FTA with the EU, regardless of any bilateral trade dimension.
Overall state of play in the trade and environment negotiations
Overall, as expected, there is more convergence on the issue of labour and the environment between the EU and New Zealand than between the EU and Australia.
The EU and New Zealand have been negotiating from the beginning on the basis of the EU’s proposed text. New Zealand chose to focus its fights on areas it particularly cares about, whilst accepting the entire legal architecture offered by the EU.
Some draft treaty language is already stabilised, notably that covering climate, forests, biodiversity, ‘responsible supply chains’, sustainable fisheries management and aquaculture.
Apart from the above-mentioned dispute settlement issue and the EU’s reticence on in some New Zealand demands on fishing and fossil fuels subsidies, one of the remaining sticking points with Wellington is the ratification of ILO conventions 87 on freedom of association and protection of the right to organise and convention 138 on a minimum age of work.
With Australia, the negotiations on the TSD chapter have been complicated from the very beginning. Australia tabled many own text and ideas, which has added complexity to the negotiation process.
Very few provisions are agreed to date and a draft ‘consolidated text’ is barely emerging after eleven rounds of negotiations. These stabilised provisions cover forest management, biodiversity and transparency.
Australia is demanding from the EU commitments on science-based decision-making, while the EU continues to insist on EU-style commitments on climate change. Australia has yet to ratify ILO Convention 138 but Canberra is not – it seems – making a major point of contention out of the matter.
All in all these negotiations are turning out to be about much more than trade: this is ultimately about the EU trading partners’ regulatory sovereignty.
Shana Takoor is a Research Analyst with Borderlex.