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Climate crisis: EU-New Zealand agreement raises the bar on climate action in trade deals

Katie Kouchakji, IBA Environment Correspondent Monday 15 August 2022

The EU-New Zealand free trade agreement (FTA) – announced in early July – is the first of its kind to include legally enforceable commitments on climate measures, as well as gender equality and environment and labour standards.

‘If you want to combat climate change, it’s certainly not a bad thing to put this in trade agreements,’ says Lode Van Den Hende, a partner at Herbert Smith Freehills in Brussels. ‘How effective this is going to be will depend on what exactly is written.’

Climate action in international agreements needs to be enforceable, he adds. ‘This in practice does not always work as well as one hopes – it remains international law […] international law will always be less efficient than civil law,’ says Van Den Hende.

His colleague Eric White, formerly at the European Commission and now a consultant at Herbert Smith Freehills, believes that the enforcement provisions in the EU-New Zealand FTA on the climate crisis and labour standards ‘are limited and modest’. For example, White highlights that it appears to only oblige both parties to not defeat the purpose of the Paris Agreement, but doesn’t cover fulfilment of each party’s Nationally Determined Contribution under it.

Furthermore, White says, the remedies for non-compliance must be equivalent to the impairment caused. ‘The most “equivalent” form of temporary remedy would be for the complaining party to also not comply with its obligations in the same sector,’ he explains. ‘But that appears undesirable and could breach its other international agreements.’

‘The core of the EU-NZ free trade agreement is still duty – the rest is still largely for show,’ says Yves Melin, Secretary-Treasurer of the IBA International Trade and Customs Law Committee and a partner at Reed Smith in Brussels. He adds that the way New Zealand already does things ‘is probably the way we would like to do things ourselves [in the EU]’.

The EU, next time it is negotiating an agreement, will be saying “look, here is where our standard is” and another country is going to have to justify why they want to be lower than that standard

Jeremy Stewart
Senior Associate, Clifford Chance

‘It’s interesting that the EU used the New Zealand FTA as the first [such agreement] to include the binding requirements – it’s not surprising, it’s easiest to reach an agreement with New Zealand because of who New Zealand is,’ Melin adds.

Jeremy Stewart is a senior associate at Clifford Chance in London, who’s qualified in New Zealand. He highlights that there are always going to be some limits to what trade agreements can do to address problems such as the climate crisis. ‘Obviously trade can contribute to climate change […] but equally it can play a role in combatting it,’ he says.

For example, efforts to increase renewable energy require more solar panels and wind turbines. ‘The cheaper you can make those products, the quicker you’re going to roll them out and move them to where they need to be around the world. Removing barriers to trade in those sorts of climate-friendly goods is one of the ways in which trade agreements can contribute to the achievement of climate objectives,’ he says.

Notably, Chapter 19 of the EU-New Zealand FTA states that the two parties will ‘facilitate the removal of obstacles to trade and investment in goods and services of particular relevance for climate change mitigation and adaptation,’ including by removing tariffs and other barriers on renewable energy, for example.

Other measures in this chapter include a goal to reform and progressively reduce fossil fuel subsidies, promote emissions trading, combat illegal logging and promote trade and investment in environmental goods and services.

The inclusion of legally enforceable commitments is novel and, importantly, sets a precedent for others to follow, Stewart says. ‘Trade agreements are not solely about the two countries that are negotiating them […] precedents are always made with trade agreements,’ he says. ‘The EU, next time it is negotiating an agreement, will be saying “look, here is where our standard is” and another country is going to have to justify why they want to be lower than that standard.’

This in turn could raise questions about a country’s commitment to the Paris Agreement – which, as of August, has been signed by 193 parties – he adds. ‘It will be very difficult going forward for countries to argue for a weakening of these sorts of precedents.’

Given that the Paris Agreement itself does not have an enforcement mechanism, replication of the EU-New Zealand FTA by other parties ‘adds a degree of enforceability’, Van Den Hende says. But none of this would be needed if governments put forward Paris-compliant targets and stuck to them, he adds.

While an FTA signed between the UK and New Zealand, announced in February, doesn’t have the same level of enforcement as the EU-New Zealand one, Melin says it doesn’t mean that deal is worse. ‘For me, the success of the UK-New Zealand [FTA] should not be assessed on whether it includes the same commitments or not, because at the end of the day, whether those commitments are in the FTA or not will not really impact the situation in New Zealand so much,’ he says.

Stewart adds that the UK-New Zealand FTA was more advanced on climate issues than the UK-Australia deal signed in December. ‘It’s interesting that the New Zealand agreement got done second,’ he says. ‘I do wonder if the New Zealand agreement had come before, whether that would have made it more difficult for the UK to defend a less ambitious approach.’

Meanwhile, the EU is still negotiating its FTA with Australia and there will be questions if the bloc is seen to be going backwards from the New Zealand deal, he adds.

And despite the differences between the deals with New Zealand, Stewart says the UK is not behind the EU and that the two FTAs are nuanced. ‘The UK has been quite outspoken on climate change and linkages between climate change and trade,’ he says. ‘There are differences in approach, but I wouldn’t say there’s any evidence that the UK is dropping standards.’

Image credit: Makara beach with wind turbine in Wellington, New Zealand. YiuCheung/AdobeStock.com

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