May 28
2020
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13th May 2020
External Relations & Trade

Op-Ed: “Could the EU’s Chief Trade Enforcement Officer enforce sustainable development commitments under EU trade agreements against non-compliant third countries?” by Ann-Evelyn Luyten and Jin Woo Kim

EU’s ChiefTrade Enforcement Officer 

The Chief Trade Enforcement Officer (CTEO) is a new post created by Ursula von der Leyen, President of the Commission, to strengthen the EU’s trade toolbox to focus on enforcement of the EU trade agreements. The CTEO will be a Deputy Director-General in the Directorate-General for Trade (DG TRADE). In his written answer to a question posed by a Member of the European Parliament published on 6 April 2020, Phil Hogan, the Commissioner for Trade, confirmed that the selection procedure for this position is currently ongoing, and that DG TRADE is adjusting its organisational structure to provide adequate support to the new function. A number of directorates will assist the CTEO in performing the enforcement activities.

The CTEO is likely to have the following two main responsibilities in order to monitor and enforce the environmental and labour obligations under EU trade agreements: (i) monitor trade partners’ commitments under sustainable development chapters in EU trade agreements and produce monitoring reports; and (ii) conduct consultations over alleged violations of trade partners and, if necessary, initiate dispute settlement procedures under EU trade agreements.

It remains unclear whether the CTEO would also be responsible for suggesting the imposition of rebalancing and has sufficient legal basis for such a suggestion, if trading partners refuse to enforce the sustainable development commitments. The EU may unilaterally initiate dispute settlement procedures under EU trade agreements to challenge the alleged violations of a trade partner’s sustainable development obligations.

However, third countries could simply decide not to implement non-binding recommendations from an FTA panel. For instance, in the ongoing FTA panel dispute between the EU and the Republic of Korea where the EU alleges that Korea failed to ratify the four fundamental ILO Conventions and, thus, Korea acted inconsistently with the labour commitments under the EU–Korea FTA, it is possible that Korea could still delay the ratification even if the FTA panel rules in favour of the EU. In such a scenario, it will be crucial for the CTEO to have trade tools to suggest the imposition of rebalancing duties or suspension of tariff concessions after a favourable FTA panel ruling.

However, it is controversial whether the EU could unilaterally suspend trade concessions when a third country does not comply with its labour and environmental obligations under EU trade agreements and, if so, under what legal basis. In Opinion 2/15, the CJEU found that a breach of sustainable development commitments under EU trade agreements authorises the EU, in accordance with Article 60(1) of the Vienna Convention, to terminate or suspend liberalisation of trade (paragraph 161). However, AG Sharpston stated in her Opinion, that even when a third country does not comply with its labour and environmental obligations, the EU cannot unilaterally suspend trade concessions, if the trade agreement – the EU–Singapore FTA in that case – does not explicitly provide this right to the EU (paragraphs 490 and 491).

This Op-Ed analyses the possibility of the EU’s unilateral imposition of rebalancing duties or suspension of trade concessions against Korea under: (i) the Trade and Sustainable Development (TSD) Chapter of the EU–Korea FTA; (ii) Article 60(1) of the Vienna Convention; and (iii) EU Trade Enforcement Regulation 654/2014.

 

Unilateral Suspension of Tariff Concessions under the EU – Korea FTA 

The TSD Chapter of the EU–Korea FTA provides a separate dispute settlement mechanism for the parties to resolve disagreement on any matter covered under this chapter and excludes the application of the general dispute settlement mechanism under the Dispute Settlement Chapter of the EU–Korea FTA.

However, unlike the Dispute Settlement Chapter, the TSD Chapter of the EU–Korea FTA does not explicitly provide any right for a party to unilaterally suspend tariff concessions when another party found to have violated its sustainable development obligations does not comply with recommendations from an FTA panel. This is a stark contrast to the Dispute Settlement Chapter, which provides that a complainant is entitled, upon notification to the respondent and the Trade Committee, to suspend obligations arising from any provision referred to in Article 14.2 (Scope) at a level equivalent to the nullification or impairment caused by the violation. (Article 14.11.2 of the EU–Korea FTA)

Accordingly, the EU would not be able to unilaterally suspend tariff concessions under the TSD Chapter of the EU–Korea FTA if Korea does not implement non-binding recommendations from an FTA panel.

 

Unilateral Suspension of Tariff Concessions under the Vienna Convention 

In Opinion 2/15, the CJEU found that a breach of sustainable development commitments under EU trade agreements authorises the EU, in accordance with Article 60(1) of the Vienna Convention, to terminate or suspend liberalisation of trade (paragraph 161).

Article 60(1) of the Vienna Convention states that ‘[a] material breach of a bilateral treaty by one of the parties entitles the other to invoke the breach as a ground for terminating the treaty or suspending its operation in whole or in part’. The provision provides, in a broad manner, the termination or suspension of the operation of a treaty as a consequence of its breach. The Vienna Convention is applicable to EU trade agreements and would, in general, allow the EU to suspend tariff concessions as a consequence of breach by third countries.

However, it is questionable whether a breach of labour commitments under the EU–Korea FTA – and, more broadly, a violation of sustainable development commitments under EU trade agreements – constitutes a ‘material breach’ that would allow the EU to unilaterally suspend tariff concessions. As Article 60(3) of the Vienna Convention defines a ‘material breach’ of a treaty as the violation of a provision essential to the accomplishment of the object of the treaty, the interpretation of this term would largely depend on the text of EU trade agreements at issue and facts in a specific dispute – in particular, whether labour commitments under the EU–Korea FTA constitute an essential element of the trade agreement.

In our view, the answer is negative. While the EU and Korea affirm in the TSD Chapter of the EU–Korea FTA their commitments to promote the development of international trade in such a way as to contribute to the objective of sustainable development, they do not explicitly state that labour commitments constitute an essential element of the EU–Korea FTA.

Moreover, although Article 1.1 of the EU–Korea Framework Agreement states that the respect for human rights constitute an essential element of the Framework Agreement, it does not provide that a violation of human rights could serve as grounds for the termination of the EU–Korea FTA. (Articles 28.3 and 28.7 of the EU–Canada Strategic Partnership Agreement provide such a provision.) Further, even if the EU–Korea Framework Agreement had contained such a provision, it remains unclear whether a violation of labour rights could be considered as a violation of human rights that could lead to the termination of the EU–Korea FTA. The EU–Korea Framework Agreement does not state that a breach of labour rights amounts to human rights violation.

Accordingly, as opposed to the CJEU ruling in Opinion 2/15, the EU would not be able to rely on Article 60(1) of the Vienna Convention to unilaterally suspend tariff concessions against Korea, as labour commitments under the EU–Korea FTA appear not to constitute an essential element of the EU–Korea FTA.

 

Unilateral Suspension of Tariff Concessions under the EU Enforcement Regulation 

The Enforcement Regulation 654/2014 entitles the EU to unilaterally suspend tariff concessions and impose new customs duties after the EU wins a trade dispute following dispute settlement procedures under the World Trade Organization (WTO) or bilateral (and regional) trade agreements.

Accordingly, if an FTA panel finds that Korea violated its labour commitments under the EU–Korea FTA, the EU may be able to unilaterally adopt retaliatory measures on the basis of the Enforcement Regulation. In particular, pursuant to Articles 3(b), 4(1) and 5 of the Enforcement Regulation, the EU could impose the appropriate ‘commercial trade policy measures’ (such as, rebalancing duties, suspension of tariff concessions, quantitative restrictions) against Korea to implement labour commitments under the EU–Korea FTA.

However, it is important to note that the Enforcement Regulation applies following the adjudication of trade disputes under bilateral trade agreements, when the EU has the right to suspend concessions or other obligations under such agreements. As explained above, unlike the Dispute Settlement Chapter, the TSD Chapter of the EU–Korea FTA does not explicitly provide that a complainant can unilaterally suspend tariff concessions in case of non-compliance of sustainable development commitments by a respondent.

Thus, the Enforcement Regulation would not be applicable when the EU decides to unilaterally suspend tariff concessions against Korea, even after a favourable FTA panel ruling. If the EU nevertheless unilaterally suspends tariff concessions against Korea, this would raise tensions with Korea which could challenge the EU’s retaliatory tariffs before another FTA panel in accordance with the Dispute Settlement Chapter of the EU–Korea FTA.

 

Conclusions

The above analysis indicates that the CTEO does not have sufficient trade tools to successfully enforce the sustainable development commitments under EU trade agreements if trading partners refuse to do so. This demonstrates that the CTEO would need to rely on dialogues via diplomatic channels to convince Korea and trading partners to implement the sustainable development commitments without any stick to potentially hurt third countries when they do not comply. In order to effectively enforce the sustainable development obligations under EU trade agreements, the Commission is likely to consider the inclusion of a provision in the TSD Chapter of future EU trade agreements that entitles a party to unilaterally suspend tariff concessions in case of non-compliance of sustainable development commitments by another party after an FTA panel ruling.

 

Ann-Evelyn Luyten is a trade policy manager at a European business association. Before joining the association, she worked at the World Trade Organization as a training officer. Jin Woo (Jay) Kim is an international trade and customs lawyer based in Brussels. He advises clients on international trade and customs matters, including EU trade remedy proceedings, World Trade Organization dispute settlement, EU customs rules, EU-Korea trade relations, economic sanctions and trade policy advice. He is the author of ‘Lack of Certification of the WTO Goods Schedules of the United Kingdom: A Way for Frictionless Trade Under No-Deal Brexit?’ (2019, 14 Global Trade and Customs Journal, Issue 6, 2019, pp. 287–296).

The authors thank Professor Marco Bronckers at Leiden University for his thoughtful comments and advice. The opinions expressed in this Op-Ed are exclusive to the authors. They do not reflect the views of any institution with which they are or have been affiliated.

 

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