On Track for Sustainable Trade?

The EU-New Zealand Trade Agreement from a Sustainability Perspective

Publisher: Verlag Arbeiterkammer Wien
Author: Thomas Fritz
September 2023
Download: Arbeiterkammer Wien

Executive Summary

The European Union’s free trade agreement (FTA) with New Zealand, concluded in June 2022, has been hailed as one of the most progressive trade deals negotiated so far. It is the first FTA implementing the European Commission’s revised approach towards the chapters on Trade and Sustainable Development (TSD) included in all recent EU trade agreements. The main novelty relates to the enforcement of TSD chapters covering environmental and labour standards, in particular the option of trade sanctions for breaches of obligations on core labour standards and the Paris Agreement on Climate Change.

Despite these improvements, the novel approach still has several shortcomings and inconsistencies. It continues to relegate potential disputes on the majority of TSD commitments to the non-sanctionable compliance stage of the FTA’s dispute settlement mechanism (e.g. commitments on the ILO’s priority conventions and decent work agenda, on gender equality, biological diversity, fossil fuel subsidy reform, deforestation, overfishing, responsible business conduct and supply chain management).

In addition, the sustainability provisions remain too weak to compensate for the pressure on labour relations and the climate associated with the market access commitments agreed under the chapter on trade in goods. The TSD chapter lacks targeted provisions improving working conditions and production methods in sectors prone to poor labour conditions and high GHG emissions where bilateral trade is expected to increase, such as farming and manufacturing. The additional trade flows will likely also increase the GHG emissions from the transportation of goods.

Since the market access commitments have not been tied to the compliance with improved social or environmental standards, the agreement risks to lock-in harmful production methods, particularly in agriculture and industry. However, rewarding companies with additional export opportunities which up to now managed to avoid decarbonisation of their production processes could delay the green transition even further. This risk is likely to be higher in New Zealand than in the EU due to the considerable size differences between these two economies.

Trade analysts are currently debating the impact of the TSD review on future trade negotiations and potential reservations of trade partners skeptical towards enhanced sustainability commitments. However, the Commission actually retains any flexibility it needs to adapt its TSD policy to future negotiations. Flexible adaptation or even backsliding on its novel approach appear all the more likely when taking the EU’s main trade objectives into account: securing market access and undistorted access to raw materials. This flexibility may have the perverse effect of even increasing the trade of harmful products.

Although the TSD revision brought some progressive features to the EU-New Zealand FTA, its overall shortcoming – fostering trade with emissions-intensive and unsustainable products – remains unchanged. The agreement could therefore cause the exact opposite of what is required: an increase instead of the needed reduction in GHG emissions – a risk confirmed by the Commission’s official impact assessment. The FTA’s weaknesses demonstrate that the EU’s trade policy still needs a more fundamental overhaul to make a serious contribution to a green and just transition.