For many years, starting with the North-American Free Trade Agreement (NAFTA) in the early 1990s, the focus was on one-size-fits-all state-to-state commitments to uphold, for example, minimum environmental and labour standards set out in preferential trade agreements (PTAs). In recent years, new trends have emerged within PTAs and, probably more importantly, a radical shift is happening away from PTAs altogether.
A first set of novelties can be found within recent PTAs, to the extent they are still being concluded (there is a clear drop in new PTAs notified to the WTO). In recent PTAs, the turn is one away from generic state-to-state sustainability commitments towards: (i) firm-level obligations and procedures (for example the Facility-Specific Rapid Response Labor Mechanism included in the United States-Mexico-Canada Agreement (USMCA)); (ii) product or sector-specific provisions (for example, preferential access limited to sustainable palm oil in the EFTA-Indonesia Comprehensive Economic Partnership Agreement); and (iii) provisions proactively tailored to the specific sustainability needs of countries, the major novelty in the EU’s Trade and Sustainable Development review 2022 (for example Maori rights in the EU-New Zealand PTA or Amazon-related provisions in the EU-MERCOSUR PTA).
A second shift is found in deals or discussions that are not PTAs in the first place. Although the EU is doubling down on PTAs, the USMCA may well be the last traditional free trade agreement concluded by the US.
The US-led Indo-Pacific Economic Framework for Prosperity (IPEF) is one example. IPEF is neither a binding agreement, nor focused on trade or market access. If anything, its target is the externalities created by free trade including, very explicitly, sustainability. This is addressed in IPEF’s Pillar II on supply chains and Pillar III on clean economy. In September 2023, the 14 IPEF countries released a new Agreement Relating to Supply Chain Resilience.
Another example of cooperation on trade and sustainability taking place outside of PTAs, in an approach that is less formal, more adaptive and incremental, and solution-focused, is the EU-US Trade and Technology Council (TTC). One of the TTC’s workstreams is the Transatlantic Initiative on Sustainable Trade to promote closer cooperation on jointly advancing the green transition. Another is the Clean Energy Incentives Dialogue to help ensure that EU and US incentive programmes for a clean economy are mutually reinforcing. The TTC also includes the Trade and Labour Dialogue to deepen discussions on the eradication of forced labour from global supply chains. In May 2023, the EU also set up a TTC with India, mirroring much of the topics under discussion in the EU-US TTC.
Finally, and this is a turn in trade negotiations more broadly (think of stand-alone agreements on digital trade or the DPP focused on plastics), a flurry of sector or even product-specific bilateral arrangements on trade and sustainability topics have emerged. The prime example here is that of critical mineral agreements. These bilateral agreements focus on securing access to raw materials such as lithium, copper, or hydrogen (and, where the US is a party, access to US green subsidies under the Inflation Reduction Act), but also include sustainability components. Ongoing negotiations on an EU-US Global Arrangement on Sustainable Steel and Aluminium are another case in point. These negotiations have several objectives (such as addressing overcapacity and trade-distorting practices), one of which is reducing the carbon intensity of steel and aluminium. Any EU-US agreement may be extended to other countries and initiate a so-called “climate club” whereby members of the club (that is, those whose producers reach a certain carbon intensity target) can freely trade steel and aluminium, while “free-riding” outsiders will either be excluded or need to pay a price to enter the club’s markets.