- The inclusion of climate objectives in recent FTAs, such as those led by EU and New Zealand, is a positive step towards aligning trade and climate objectives and ensuring both international and domestic targets are met.
- These new FTAs likely influence cooperation on trade and climate more broadly by:
o Helping to inform and propel plurilateral/multilateral initiatives e.g. fossil fuel subsidies reform has become a part of the negotiating agendas of the WTO and Paris Agreement.
o Helping to bridge the divide between distinct approaches to national regulation to enable broader international cooperation
o Breaking down silos between trade and climate agreements and objectives
o Testing new models of international treatymaking and cooperation, embedding long-term coordination of domestic climate policy aims.
- Establishing a shared definition of fossil fuel subsidies or climate labels would help make trade smoother and benchmark meaningful national action
For the successful implementation of net-zero targets significant reform of countries’ trade strategies and patterns is necessary: countries will need to increase trade and investment in low-carbon goods and services, and decrease trade and investment in high-carbon goods and services. Free Trade Agreements clearly have the potential to play a supporting role in this process.
Integrating climate objectives into Free Trade Agreements (FTA) is relatively new: few FTAs are aligned to climate objectives, with some of the largest FTAs not mentioning climate change by name at all as an explicit objective. This is because FTAs:
- Were traditionally understood as supporting primarily trade and economic objectives
- Many were negotiated before global recognition of the climate crisis
- The inclusion of climate objectives requires consensual commitment by FTA partners
Nevertheless, since 2020, both the EU and New Zealand have committed to integrating climate objectives into their FTA strategies. The EU’s approach emphasizes ‘mainstreaming’ sustainability - including climate - objectives throughout FTA, and introducing stronger enforcement mechanisms to reinforce commitment to climate action. New Zealand’s approach has focused on regulatory cooperation, particularly through commitments to phasing out harmful fossil fuel subsidies.
Both have moved to increase the prominence of climate objectives in Free Trade Agreements. The EU’s Green Deal goes as far as to say it will impose sanctions on FTA parties for non-compliance with the Paris Agreement, although The Paris Agreement relies upon participating countries to define their own contribution to reducing emissions, and whilst therefore probably mostly symbolical, with reference to the Vienna Convention on the Law of Treaties (VCLT), it means that either Party can partly or fully suspend the agreement if it is breached, elevating its status to accompany traditional EU FTA ‘essential elements’ of democratic principles, the rule of law and human rights.
EU strategy: The UK-EU Trade and Cooperation Agreement (TCA)
The TCA includes five distinct FTA innovations:
- Commitment to respect the Paris Agreement
- Affirmation of Net-zero targets
- Inclusion of specific quantitative interim reduction targets on greenhouse gas emissions committed in domestic legislation
- Commitment to uphold an effective system of carbon pricing
- Inclusion of a ‘Rebalancing mechanism’ to address divergence in future policies and threatens the suspension of all or part of the TCA’s trade provision for failure to keep pace
The TCA combines high-level ambitions with specific quantitative targets underpinned by strong enforcement mechanisms, with the potential for sanctions from to the failure to keep pace with future levels of climate protection.
These innovations are significant because they are mostly quantitative in nature, making compliance assessment relatively concrete and objective. However, the novel nature of these provisions makes their interpretation highly unpredictable, relying upon the interpretation of several concepts which have no precise equivalents in existing EU treaties or that are undefined.
New Zealand’s approach
New Zealand has lead negotiations for the first FTA that explicitly defines its objective as climate-related: the Agreement on Climate Change, Trade and Sustainability (ACCTS) in partnership with Fiji, Iceland, Norway and Costa Rica. The ACCTS aims to support the Paris Agreement by identifying areas in which trade-related measures can reinforce climate action. These include three core objectives:
- Removal of tariffs on environmental goods and new binding commitments for environmental services
- Eliminating harmful fossil fuel subsidies
- Developing guidelines on voluntary eco-labelling programmes
New Zealand’s recent FTAs with the UK and EU also aim to eliminate harmful fossil fuel subsidies, include reference to Parties’ net-zero by 2050 ambition, commitment to the Paris Agreement and, in NZ-UK, pursue efforts to limit warming to 1.5C above pre-industrial levels as a high-level commitment. However, differences in how countries measure fossil fuel subsidies, no criteria for defining these, and areas of interpretive ambiguity mean it is unlikely that either side could successfully demonstrate that the other had failed to meet its obligations.
Though including climate provisions in FTAs is still only done by a minority of countries, they are likely frontrunners, rather than outliers, and their influence goes beyond the countries that have signed them. These FTAs provide useful demonstration value for other countries addressing the crucial problem of how to ensure that trade and trade agreements support global decarbonisation efforts. Also, establishing shared definitions, e.g. on how to define fossil fuel subsidies, would aid greatly in efforts to benchmark meaningful national action.