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13 March 2021

Free Trade, Environment, Agriculture, and Plurilateral Treaties: The Ambivalent Example of Mercosur, CETA, and the EU–Vietnam Free Trade Agreement

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Research Unit Sustainability and Climate Policy, 04229 Leipzig, Germany
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Faculty of Agricultural and Environmental Sciences, University of Rostock, 18051 Rostock, Germany
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Faculty of Law and Interdisciplinary Faculty, University of Rostock, 18051 Rostock, Germany
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Author to whom correspondence should be addressed.
Sustainability2021, 13(6), 3153;https://doi.org/10.3390/su13063153
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Abstract

Transnational trade holds opportunities for prosperity and development if accompanied by a robust political and legal framework. Yet, where such a framework is missing, transnational trade is frequently associated with, among others, negative impacts on the environment. Applying a legal comparison, this article assesses if recent free trade agreements, i.e., the Mercosur Agreement, CETA and the EU–Vietnam Free Trade Agreement, negotiated by the European Union, have been underpinned with effective environmental standards so that they are in line with global environmental goals and avoid detrimental effects on climate and biodiversity. Besides that, we evaluate the extent to which these agreements at least enable and incentivise environmental pioneering policies in the trading Parties. In particular, we discuss the likely impacts of the agreements on the agricultural sector. The analysis finds that, while a few mandatory standards concerning, e.g., deforestation have been established, overall, the agreements lack a comprehensive legal framework to uphold/enhance environmental protection. Moreover, weak dispute settlement mechanisms to ensure compliance with sustainability measures limits their effectiveness. In addition, the provisions on regulatory cooperation and investor-state dispute settlement are likely to negatively affect the decision-making processes and (thus) discourage ecological pioneering policies in the trading Parties. Hence, there is a long way to go so that transnational trade is compatible with global environmental goals.

1. Introduction: Free Trade and the Environment

Globalisation is a prevailing trend which encompasses worldwide trade as well as informational and cultural exchange [1,2,3]. Globalisation has not emerged ‘naturally’ but is the product of political decisions for free trade. Cross-border free trade, being one central element of globalisation, holds considerable opportunities for global prosperity. This is because capitalism requires legal certainty, free ideas and innovation, and thus connects well with liberal systems, just as markets and competition principally match well with liberal democratic basic principles [4,5,6,7,8].
Up to now, when considering social-economic aspects only, in sum, globalisation has benefited the people of Western countries. For example, many jobs have been created in the export sectors and even those who lose out to globalisation would be ‘financially compensated’ by basic manufacturing jobs or, as a last resort, through social benefits due to rising overall prosperity. However, today, more competitive nations challenge established social welfare systems by a potential race to the bottom in terms of social standards. This challenges environmental, climate, and resource politics, unless anchored at an international level. Lower (corporate) taxes and social and environmental standards usually correspond with lower costs of production and henceforth competitive advantages. This hampers purely national social and environmental politics and therefore requires a global legal framework of free trade. The collateral damage is furthermore accompanied by shrinking profit margins of additional measures of liberalisation [9,10,11] (pp. 773 et seq.), [12] (pp. 20 et seq.), [13] (p. 61).
Before this background and much like in the history of the EU, environmental and social standards are useful measures, either directly incorporated into trade agreements or through an expanded international environmental and social law, [13] (pp. xiv et seq., 190 et seq.), [14,15,16]. Trade agreements in particular appear to be promising vehicles in counterbalancing the negative trends described above as their provisions frequently exceed those of the WTO and in some cases those of Multilateral Environmental Agreements [17]. Indeed, some kind of contribution of international trade towards transitioning to sustainability has been acknowledged [18,19,20,21,22] (para 271). For example, the 2030 Agenda for Sustainable Development recognises international trade as contributor for sustainable development [23] (para 68). Besides, studies have identified a link between regulatory change in domestic environmental policy making in response to environmental provisions of preferential trade agreements [24]. Others find that environmental provisions of trade agreements reduce air pollution in the trading Parties [25] while trade in low-carbon goods could be incentivised [19]. However, significant challenges regarding the environmental and social security systems remain. For example, multiple studies highlight the issue of deforestation in highly valuable forests as a result of trade, while others point towards the problems of income inequality [14] (pp. 138–144), [26,27,28,29]. Moreover, there is an ongoing discussion about carbon leakage and the shifting of emissions through international trade [30,31].
Still, many economists might be critical of an approach that focusses on climate and resource protection because they consider, generally speaking, any barrier to trade as negative [13] (pp. 45 et seq.), [32,33,34] (p. 101). The argument instead goes that unregulated trade causes greatest prosperity globally and is therefore the only (sensible) social-political way forward for OECD and developing countries alike. Where a need for regulation arises, e.g., where the general public calls for more climate protection or for (better) health insurance, nation states will have to provide the necessary regulatory tools [35,36] (pp. 105 et seq.), [37] (pp. 219 et seq.). Yet this argument, as well as the shrinking prosperity gains that have arisen from the division of labour in the past, do not oppose political measures as required by a global climate concept and its integrated social-political balancing. Furthermore, past experiences and the current dumping issue show that in order to work well, markets and free trade require a strong governmental framework, functional institutions, possibilities for social compensation measures, well-developed infrastructure, a well performing education systems, the absence of corruption, etc. [13,38,39,40] (pp. 135 et seq.). Besides that, many people on the globe (still) do not benefit from the established trade system.
Currently, doubts about the effects of globalisation, however do not increase the pressure to create global standards. Instead, they seem to push renationalisation processes everywhere [41,42,43,44]. At the same time, while national and European policymakers principally still have the legal authority to pursue environmental and social policy, they are hampered by the global economic constellation of globalisation introduced above, and ecological problems might simply shift to other countries [30,45]. Viewed from this angle, it seems reasonable that the EU Commission aims to further develop free trade and accompanying (in particular) ecological standards through plurilateral trade agreements.
It is before this background that the present article investigates (a) the extent to which free trade has recently been underpinned with transnational environmental standards—or whether, on the contrary, free trade agreements have been agreed at the price of common but less ambitious (environmental and social) standards. Besides that, where such standards are missing, (b) the article discusses to what extent at least environmental pioneering policies of the trading Parties are legally or factually enabled (or hampered) by plurilateral treaties. Thus, rather than focussing our analysis to the effects of trade agreements onto domestic environmental and international trade law or why trading Parties chose to incorporate environmental provisions into the agreements [17], we investigate the robustness of environmental provisions within the agreements. By assessing the extent to which the provisions establish environmental standards and/or enable ambitious environmental policy making, we are able to understand the role that these agreements contribute to addressing environmental (and social) global challenges. To this end, the analysis builds on a legal comparison of three free trade agreements that have recently been negotiated by the EU or are currently in the negotiation and ratification process. The three agreements are the EU–Mercosur Agreement, the EU–Canada Comprehensive Economic and Trade Agreement (CETA), and EU–Vietnam Free Trade Agreement (EUVFTA).
The article precedes as follows: The section hereafter describes the methods adopted. Section 3 provides the results of the analysis, which includes the provisions on the precautionary principle, multilateral environmental agreements, regulatory cooperation, and in particular technical barriers to trade. We furthermore analyse the two dispute settlement mechanisms of the agreements and the measures on the right to regulate. A discussion and conclusion follow.

2. Materials and Methods

This article adopts a comparative legal analysis of three selected free trade agreements and combines it with a governance analysis. To this end, the discussion assesses the provisions of the Mercosur Agreement, CETA, and EUVFTA. These agreements have been selected due to their particular and current importance in the field of globalised trade and EU trade policy. Obviously, these agreements differ in their (asymmetric) trade relationships, structures, trade balances and volumes etc. As such, a comparison provides valuable insights how trade agreements negotiated by the EU implement (effective) measures to respond to urgent environmental challenges across these differences (or not).
The Mercosur Free Trade Agreement is an agreement between the EU and Argentina, Brazil, Paraguay, and Uruguay (forming the Mercosur bloc.) It is part of a three-pronged association agreement consisting of trade (discussed in this article), political dialogue, and cooperation. The negotiations of the three pillars have been concluded but have not been signed. While an Agreement in Principle has been published by the Commission, the latter two agreements are not in the public domain [46,47,48,49] (p. 12). Hence, the following elaborations build on the so-called Agreement in Principle. The Commission expects that the free trade agreement is going to be considered a mixed agreement, i.e., the subjects of the agreement do not fall exclusively under EU competency (Articles 3 and 4 TFEU). Therefore, in addition to the Council and the European Parliament, EU countries will also have to validate the agreement [46,50,51].
CETA is a comprehensive trade agreement between the EU and Canada which provisionally entered into force in 2014. The ratification in the Member States of the EU is pending (Article 30.7(3) TFEU). Finally, in August 2020, the free trade agreement between the EU and Vietnam entered into force while the Investment Protection Agreement is still in the process of ratification [52].
The basis for the comprehension of the texts are legal interpretation methods, focusing on the literal sense and systematics of legal norms [16] (pp. 53–58), [53,54,55] (pp. 472–475). A legal comparison is a method to gain and deepen scientific knowledge and provides insights into the correlations, dynamics, processes, causes, and recurring patterns of reality [54,56,57] (pp. 2–7), [58] (pp. 32 et seq.). Thus, a legal comparison contributes to understanding coherences and certain patterns in legal texts, based on which they can be critically analysed.
Given the twofold question of this paper on transnational environmental standards and the possibility of national pioneering roles, we assess the Mercosur Agreement in Principle, CETA, and the EUVFTA regarding their provisions on the precautionary principle and multilateral environmental agreements as well as the provisions on regulatory cooperation and in particular technical barriers to trade. Besides that, we analyse the dispute settlement mechanism of the chapters on trade and sustainable development. These provisions could have the potential to both establish transnational standards and enable pioneering policies in the trading Parties. Thereafter, we assess the provisions on the right to regulate. At last, we introduce and discuss the investor-state dispute settlement mechanisms which are incorporated into CETA and the Investment Protection Agreement of the EUVFTA. Rather than establishing transnational standards, these provisions provide a frame to enable ambitious policy making in the Parties. An overview of the analysis can be found in Table 1 below. In particular, we assess the impacts of the Mercosur Agreement in Principle onto the agricultural sector and the associated environmental challenges. We frequently draw on examples in Brazil as the nation currently accounts for the highest trade flows between the EU and Mercosur [59]. The table below provides an overview of the analysis.
Table 1. Overview of the legal comparison (source: own table).
The present article measures the ecological effectiveness of the regulations—in terms of establishing transnational standards or at least enabling forerunner actions—towards the international binding climate and biodiversity targets (see in detail on governance analyses [16,60,61]). The ecological effectiveness of certain measures depends on, e.g., their design as well as their enforcement capacity which is why we make references to both dimensions.
An adequate level of protection is achieved when the goals of the Paris Agreement (PA) and the Convention of Biological Diversity can most likely be met globally. Article 2(1) PA aims at halting global warming well below 2 degree Celsius and to pursue efforts towards 1.5 degree Celsius. A number of arguments, inter alia based on Article 3 of the Paris Agreement, shows that the 1.5 degree target is legally binding to all nation states and prevails against Article 4(1) PA [62]. The target must not be exceeded in the remaining timeframe. Importantly, achieving the 1.5 degree target with reasonable certainty (rather than taking a 50–66% probability as basis as calculated by the IPCC), requires global zero emissions and zero fossil fuels in all sectors including, e.g., agriculture, mobility and construction in a maximum of two decades alongside a significantly reduced livestock sector [62]. More precisely, this is implied when presupposing that beyond rather unproblematic measures such as peatland management [60], forest management and restoration or enhancing the soil carbon content by climate-adapted agricultural practices (to compensate for remaining agricultural and process emissions), large-scale technical approaches like, e.g., atmospheric solar radiation management (SRM) in the field of geoengineering are not available in the short term. In contrast, it is highly uncertain that large-scale geoengineering and particularly SRM approaches can ever be implemented at all with a justifiable risk [63]. In sum, all of this also challenges agricultural production and the global trade system.
At the same time, the Convention on Biological Diversity aims at halting the loss of global biodiversity and instead to reverse the trend of biodiversity degradation/loss [64] (Strategic Goals B and C). Considering the rapidity in global biodiversity loss [65,66], these goals also significantly challenge the production of goods in the agricultural and all other economic sectors. In this respect, the three free trade agreements are examined in terms of whether they are in line with the objectives of the PA and the CBD. This means in particular that the agreements should not lead to a deterioration of climate and biodiversity protection policies in the trading Parties. Instead, the agreements have to introduce even more stringent climate and biodiversity conservation standards in order to achieve the international binding goals.

4. Discussion: Trade, Environment and Agriculture

Transnational trade, being one element of globalisation and facilitated by the free trade agreements, can only have beneficial impacts in a broad sense if accompanied by a robust political and legal framework [16] (pp. 261–262). In fact, the preamble of the Marrakesh Agreement provides that, above all, trade should be conducted with, among others, a view to raising the standard of living while optimally utilising resources in accordance with sustainable development and seeking to protect the environment (recital 1). To this end, Parties to the WTO may enter into agreements which reduce tariffs and other barriers to trade (recital 3) (ibid) (different in e.g., [74] (p. 252)). Indeed, some studies find that the EU shows leadership in promoting climate measures in trade agreements [87] (pp. 557–560) while others highlight the pivotal role of the US in greening trade [17]. Besides, studies confirm that trade agreements can indeed diffuse environmental measures. For example, Peru has adopted new environmental provisions in response to the US-Peru trade agreement. Yet, importantly, this trade agreement differs from the agreements of this article in that trading Parties have recourse to an effective dispute settlement mechanism (Article 18.12.(6) US-Peru PTA). As such, trading Parties can (more) effectively require the other Party to comply with the environmental protection provisions. Still, despite the adoption of new domestic policies in Peru, compliance remains a significant issue [17] (pp. 103–128). The potential to ‘export’ environmental standards and human rights of free trade agreements has also been acknowledged in the context of the Mercosur Agreement [10] (p. 14), [92] (p. 68). However, the analysis of this article paints a different picture. While some positive elements have been incorporated into the three agreements, overall, the provisions do not create a robust legal framework for effective environmental protection. At times they do not even ensure that environmental protection standards are not lowered over trade facilitation. This stands in sharp contrast to the global environmental goals enshrined in the Paris Agreement and the CBD (Section 2).
The liberalisation of the agricultural sectors of the EU and the Mercosur countries exemplifies the significant implications that transnational trade is likely to have on climate and biodiversity unless accompanied by a robust legal frame. This becomes particularly clear, when shedding light onto the livestock sector because meat and livestock products, both in the EU and Mercosur, are associated with high resource consumption and are a major driver of multiple environmental issues including biodiversity loss and open nutrient cycles [130,131,132,133].
In general, the welfare gains the Mercosur agreement are expected to be small [9,10] and these gains can be unevenly distributed across sectors and regions (see for a comprehensive critique on the modelling techniques and underlying assumptions [134], [13] (pp. 55–61)). Nevertheless, it is worth noting that the import quota for beef from Mercosur to the EU increases. Currently, Mercosur countries are allowed to export approximately 67,000 t of high-quality beef under the preferential ‘Hilton Quota’ at a 20% tariff rate (Article 1(1)(a)(c) and (3) Regulation (EU) No 593/2013). Under the Mercosur Agreement, this quota is replaced by an in-quota rate of 7.5% of 99,000 t of beef—55% fresh and 45% frozen. The European Commission argues that because the 99,000 t beef with preferential treatment represent only 1.2% of the European beef consumption, the new quota will replace some of the current imports and will not lead to a production increase in Mercosur countries [135] (p. 3). The opposite, i.e., the provisions of the free trade agreement will serve as an incentive to increase production and export to Mercosur producers, has been argued by others [94] and has recently been found by the SIA in support of the agreement. Results of the SIA show that, applying the conservative scenario, bovine meat imports of the EU (9.3%) as well as output (0.2–2.1%) and export (0.7–10.1%) of bovine meat in all Mercosur countries are expected to increase (relative to the baseline scenario) [92] (pp. 30–34). The report furthermore assumes that additional land that is required for cattle production in Mercosur countries will likely come from the conversion of idle lands (ibid, p. 113). Besides that, the Mercosur Agreement in Principle contains provisions on the access to raw materials. It provides that duties that are currently imposed by Mercosur on products such as soybean products which are used for EU feedstock will be reduced or eliminated [91] (p. 3) which has led the Commission to reason that the agreement will improve the access to these raw materials [46] (p. 6). Yet, soybean exports, next to beef exports, from Latin America to Europe are a major driver of deforestation in Latin American countries [26,27] and thus contribute to the environmental issues discussed above.
Moreover, in its recent communication of the Farm to Fork Strategy, the Commission states that it will ‘examine EU rules to reduce the dependency on critical feed materials (e.g., soya grown on deforested land)’ [136] (p. 8) which clearly contradicts with the provisions of the Agreement in Principle. Overall, the expected increase in traded meat and feedstuff will (most likely) increase the pressure on climate and biodiversity. In turn, the few mandatory environmental standards which are established in the Trade and Sustainable Development Chapter are unlikely to prevent environmental degradation due to the weak dispute settlement mechanism. Parties will not be able to hold each other accountable and enforce the provisions of the agreement. Thus, agreeing with others [17] (pp. 175–176), environmental provisions have to become subject to the general dispute settlement mechanism of trade agreements. In the meantime, the provisions of MEAs such as the Paris Agreement and the CBD could be enforced by invoking Article 31 of the Vienna Convention on the Law of Treaties. Yet, past experiences have shown that this is unlikely to happen.
The potential to export environmental standards might also seem feasible because environmental protection standards in the EU frequently appear to be more ambitious than, e.g., in the Mercosur countries and Vietnam [137]. Yet, lifting these lower standards to the EU level is far from sufficient to effectively tackle the various intertwined global environmental issues. At present, even if ongoing EU legislative procedures try to strengthen EU climate and land-use policy, they are still frequently not in line with the goals of the Paris Agreement and the CBD [62,86,138].
All of these issues feed into longstanding critique of NGOs and recently reached the political arena when e.g., the Cypriot parliament voted against CETA [139] while the German chancellor [140], the French President Emmanuel Macron [141] and the Austrian Parliament [142] voiced concerns or announced to not ratify the Mercosur Agreement. Thus, before Mercosur is adopted, the agreement requires comprehensive renegotiations aiming at the establishment of robust environmental standards in line with global environmental goals.
Moving beyond Mercosur, the provisions on regulatory cooperation and the investor-state dispute settlement mechanism (CETA and EUVFTA) in the agreements might negatively affect the policy making process (e.g., when aiming to adopt strict(er) environmental protection requirements). For example, uncertainty about liability regarding the legitimate expectation of investors (Section 3.4) might lead to a ‘regulatory chill’, i.e., political inaction in the face of (presumed) liability pressures [143], [144] (pp. 115–116). While this would contradict with the precautionary principle established in the agreements and in EU primary law, the actual effects of the provisions are hard to predict.
Besides that, CETA and the EU-Vietnam IPA, if ratified, would grant investors with the right to make use of a mechanism to settle investment disputes which is not accessible to natural persons or non-governmental institutions. Thus, these agreements would create significant inequalities [74] (p. 262), [128] (p. 52), [145] (pp. 78–79), [146] (pp. 766–767), which would continue to exist for 20 years even if CETA was terminated by one Party (Article 30.9(2) CETA).
Addressing the inequality imbedded in the investment dispute mechanisms and emphasising that businesses have a responsibility to respect human rights and that civil society actors have an important and legitimate role in seeking remedy for the adverse human rights impacts, the UN Human Rights Council decided to create an intergovernmental working group. The working group shall elaborate an international legally binding instrument to regulate, in international human rights law, the activities of transnational corporations and other business enterprises [147]. Among others, under the envisaged instrument, victims of human rights violations shall have access to justice and adequate remedies and be guaranteed the right to submit claims to the courts of the state Parties [148] (Article 4(2)(c) and (d)). While this approach appears to be a promising step to counterbalance the one-sided rights of investors, it is noteworthy that the establishment of the working group and the efforts to develop such a mechanism have initially been met with reluctance by the EU, its Member States and many other industrialised countries [147] (p. 3), [149] (pp. 4, 10).
Instead, the European Commission, rather than being a forerunner in the intergovernmental working group, aims to introduce mandatory human rights and environmental due diligence legislation in 2021 which would apply to companies and investors [150]. It is certainly an important step to hold companies and investors—such as agricultural businesses—accountable by introducing mandatory rather than voluntary instruments. Yet, at the same time, implementing and enforcing these provisions will be challenging [151] (pp. 557–562). Besides that, the envisaged legislation does not resolve the issues of the imbalanced privileges of natural persons and civil society actors to courts. Lastly, command-and-control instruments frequently face typical governance problems including shifting and rebound effects as well as enforcement issues. It is before this background that geographically and sectoral broad quantity control instruments have been proposed to effectively limit global warming and to stop/ reverse the loss of biodiversity [60,133], i.e., a cap-and-trade system to phase out fossil fuels within maximum two decades and a cap-and-trade system for livestock products. As global measures, these instruments would directly and indirectly push global trade towards sustainability. Yet, even if for example the European Union would push for such a policy, it seems (highly) unlikely that the policy would be implemented on a global scale. Therefore, border adjustments for imports and exports will have to accompany this approach. Border adjustments would, e.g., impose a fee on imported products which have been produced under less stringent environmental protection requirements [152,153,154], [16] (pp. 243–246). And in fact, the implementation of carbon border adjustments has recently again [155,156] been put on the political agenda as part of the Green Deal of the European Commission [157] (p. 5). Besides that, linking global environmental standards to financial transfers to developing countries could create the global conditions (welfare state, rising education) that nation states require to profitably participate in global free trade—including the establishment of democratic institutions. At the same time, further efforts should be undertaken to develop structures/institutions which provide natural persons and civil society actors with access to a court system and the ratification of the provisions on investor-state dispute settlement should be blocked.

5. Conclusions

This article analysed three free trade agreements with regard to their contribution towards transitioning to sustainability. In particular, the analysis assessed the extent to which the agreements create transnational standards and the extent to which they legally and/or factually hamper or enable ecological pioneering activities of the trading Parties. To this end, we compared the provisions on the precautionary principle, multilateral environmental agreements, regulatory cooperation as well as the dispute settlement mechanisms and the measures on the right to regulate. The analysis has shown that while it is positive to see that trade and sustainable development has become part of all three agreements including direct references to global environmental goals and a few mandatory standards on, e.g., deforestation (Mercosur Agreement), overall, effective measures to ensure environmental protection as required by the goals of the Paris Agreement and the CBD are missing. Besides that, it appears that the provisions of the free trade agreements frequently favour trade facilitation over environmental protection. Hence, these agreements to a very limited extend only establish transnational standards which would ensure the positive contribution of trade to sustainability and/or enable ambitious policy making in the Parties. At the same time, because many provisions on, e.g., regulatory cooperation and trade and sustainable development are voluntary and the outline of the investor-state dispute settlement mechanisms has been reformed, their actual effects are hard to predict. Yet, all of this does not limit the urgency to implement effective (trade) policies and global standards to combat global environmental challenges such as climate change and biodiversity loss including, e.g., ongoing deforestation due to agricultural expansion in Latin America. However, because it seems unlikely that global political agreement will be reached any time soon, for the meantime, quantity control instruments in line with environmental agreements accompanied by border adjustments have been proposed for the EU. With regard to the analysed free trade agreements, it became clear that the provisions of CETA and the EUVFTA which already entered into force require amendments to make them compatible with global environmental goals, that the Mercosur Agreement requires renegotiations and that the ratification of the provisions on investor–state dispute settlement mechanisms should be blocked.

Author Contributions

Conceptualisation, background, research questions F.E.; methodology J.S.; formal analysis K.H. and P.R.; writing—original draft preparation F.E., K.H. and P.R.; writing—review and editing, K.H., J.S., B.G. and F.E.; supervision, F.E. All authors have read and agreed to the published version of the manuscript.

Funding

This research was partly funded by the German Federal Ministry of Education and Research (BMBF) within the BonaRes project InnoSoilPhos (No. 031B0509) and by the Leibniz Association within the framework of the Leibniz ScienceCampus Phosphorus Research Rostock.

Institutional Review Board Statement

Not applicable.

Data Availability Statement

No new data were created or analyzed in this study. Data sharing is not applicable to this article.

Acknowledgments

The authors gratefully acknowledge the German Federal Ministry of Education and Research (BMBF) for funding the BonaRes project InnoSoilPhos (No. 031B0509) and the Leibniz Association for funding the Leibniz ScienceCampus Phosphorus Research Rostock.

Conflicts of Interest

The authors declare no conflict of interest.

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