Animal welfare as subjects of trade agreements?

I had blogged a few weeks ago about chapters in FTAs that are usually not seen in traditional trade agreements. This was in the context of New Zealand.

This time it is "animal welfare" that has taken its position in an FTA chapter as a separate chapter. the new UK-New Zealand FTA has, inter alia, a chapter on animal welfare. As per Article 6.1 of the FTA, the purpose of the provisions on animal welfare in a trade agreement is "to enhance cooperation between the Parties on animal welfare of farmed animals." It states that animals are sentient beings and protection and welfare of animals may be in the interest of a party's trade objectives.

The chapter recognises the right of parties to regulate with respect to animal welfare, not derogate from their animal welfare laws, exchange information, expertise, and experiences in the field of animal welfare with the aim of improving understanding of each other’s regulatory systems, policies, and strategic approaches, and enhancing animal welfare standards and also set up a working group to work on animal welfare issues.

The chapter is innovative in the sense that it places animal welfare as a "trade issue". It pretty much opens the door for any issue to be a trade agreement chapter. For those countries that are cautious about the scope of trade agreements, this can be problematic. For others, there is no limit to what trade can impinge upon.

The soft landing perhaps is the exclusion of the application of the dispute settlement provisions to the animal welfare chapter. One way of introducing innovative chapters in free trade agreements is to exclude it from the scope of dispute settlement. It takes enforcement out of the debate, but does push the agenda that both parties are interested in pursuing. Sensitivities on both sides taken care of perhaps?

Global norms, local initiations?

I had commented on the EU CBAM and it's potential challenge under the WTO dispute settlement system here. The other question it raises is setting of standards outside multilateral fora. Since carbon tariffs or penalties on imports based on carbon content are not being negotiated in any multilateral fora, individual countries are going ahead with their own set of rules. While the compatibility to international trade rules is one issue, how these standards ultimately will become global norms is another interesting arena of research. Will these rules, ipso facto, force trade reliant emerging economies to adopt them despite no legal need to do so?

Harvard Law Review has this piece on the reality of carbon tariffs and their impact on trade and how countries would react to them. Though carbon tariffs have an ambiguous status under international law, it argues that it seems to be the only way forward to address the issue of climate change. Pointing towards the indirect benefit carbon tariffs may have on other economies, it states:

As access to large and valuable markets like the United States and the European Union becomes predicated on a showing that comparable climate policies are at work in the exporting state, more and more trade-dependent economies that might not otherwise adopt rigorous climate policies will be compelled to show that they too are complying with the Paris targets, further expanding the body of state practice. These effects may not produce a critical mass of state practice and legal obligation and may not overcome the inertial effects of persistent objectors, but they will almost certainly move the needle in the right direction.

Will the EU CBAM lead to the widespread adoption of carbon tariffs in emerging economies? Will they be challenged in the WTO? Will it lead to re-negotiation of the Paris Climate Agreement commitments? How ultimately are international standards set? My initial moves by large developed economies and inevitable adoption by others or in a more structured multilateral way? 

What lessons does this have for internet governance and the rules around it? Who will set the rules for internet governance, digital tax, digital governance, privacy and trade? Will it take a similar route of a few taking the initiative and others following suit?

Restoring the Appellate Body

I had blogged here about appealing into the void at the WTO. 

For anyone interested in WTO dispute settlement and a possible solution to the impasse of the Appellate Body crisis, a detailed piece in the PIIE blog by the former Deputy Director General of the WTO Alan Wm Wolff on the history, tensions, alternatives and possible way forward is an exhaustive read. It lays down the history of the dispute settlement system, the US view on what is wrong with it, the fundamental difference between the US and EU on the way it should function as well as what can be done to resolve the issue.

A must read for an inner ring view of how the Appellate Body is viewed in the United States.

Some trade news

Some interesting news from the trade front:

1. India and Australia signed off on a Free Trade Agreement - the text of the agreement is here. Christened the "India-Aus Economic Co-operation and Trade Agreement". It covers substantial tariff reductions on the goods side and services trade liberalisation. Justin Brown writing earlier this week for the Lowly Institute highlighted the importance of trade policy for Australia in it's overall foreign policy and stated:

First, negotiating free trade agreements (FTAs) and trade facilitation arrangements must remain a priority to promote export diversification. Comprehensive FTAs with India and the EU will be difficult to land in the near term; the government’s efforts to strike an early progress agreement with India is a pragmatic way forward.

There would be merit in considering bilateral trade facilitation arrangements in sectors that are key to our economic resilience, such as critical minerals and the green economy/manufacturing.

After the UAE, it is India's second back to back trade agreement in recent times.

2. How important is standard setting in regional trade agreements? Should one participate in it to be rule-setters rather than rule-receivers? Should we be concerned if we are not at the table negotiating these deals? Do we lose an opportunity to shape them or is that fear over-exaggerated. 

Evan A. Feigenbaum, vice president for studies at the Carnegie Endowment for International Peace makes a forceful point on the importance of being at the negotiating table in large regional trade arrangements. Commenting on the Indo-Pacific Economic Framework and the US, he testified:

And so we should be rediscovering our role as a standard-setting nation. But somehow, we now manage to find ourselves on the outside of agreements—the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP), the Regional Comprehensive Economic Partnership (RCEP), and the Digital Economy Partnership Agreement (DEPA)—that could set standards in Asia for a generation.

How important is rule-making in a multilateral setting? Who should frame them and what motivations should drive this agenda?

3. Trade agreements for the metaverse? Metaverse has been in the news - for creating this virtual reality where a parallel professional and personal life can be re-created. What about trade in this metaverse? Would they be subject to trade rules? Who will make these rules? Trade Policy Expert, Sam Lowe, has some thoughts on how trade rules will ultimately require to catch up with the meta-universe and its virtual trade realities, whether it is in services or goods. Reacting to a question on whether we can have a trade treaty on this subject, he realistically notes:

That’s the other thing we haven’t actually discussed. How do you govern? If you have a global metaverse, you also then have to govern trade within it. So the exchange of digital property – tokens, or you could have your own house – who do you buy it from, how do you get a legal guarantee to it?

 We’ve got a pretty good treaty in place, when it comes to trading goods under the auspices of the WTO. There are provisions relating to services, but they’re very undeveloped. No one’s really managed to make any multilateral progress on anything new or modern. You do get some in bilateral contexts – say, the U.K. and Singapore, most recently, reaching a digital economy agreement that has sorts of commitments to refrain from data localization, placing duties on data flows and the like, but it’s very piecemeal. 

My view is that in terms of how this will develop, individual countries, and particularly the larger ones – the U.S., European Union, India, China – will introduce their own piecemeal approach to all of this and it won't be a collective vision. It won’t be, "We will think about how we regulate the metaverse," it will just be, "Well, we’ll think about how we regulate the fact that we’ve got all of these people providing consulting services from the other side of the world and displacing our local consultants." And the regulation you introduced to deal with that has an impact on what you can do in the metaverse.

Not many people are thinking about trade rules to govern this new reality - a shot in the dark? 

Taahiraa Pai! How innovative can FTA's get?

Taahiraa Pai (good step) in Maori. 

Is there any topic that is not relevant to trade agreements? Apparently not! 

News of a UK-NZ FTA is out. And one of the chapters in this FTA is one on Maori Trade and Economic Co-operation. I haven't been able to get hold of the text of the agreement, but this is the synopsis:

26. Māori Trade and Economic Cooperation

This chapter contains provisions for cooperation activities to strengthen the trade relationships between UK, New Zealand and Māori enterprises. This will help Māori enterprises maximise the opportunities arising from the FTA, alongside New Zealand and UK enterprises.

The chapter also recognises the importance and value of the Māori to New Zealand’s economy and society. In addition to the unique relationship between the UK, New Zealand and the Māori.

Though it is in "co-operation activities" language, it definitely signals an innovation in trade agreements - of addressing issues related to Maoris that are not the traditional preserve of FTAs - Tariffs, Services, Rules of Origin, Digital Trade, Investment and dispute settlement.

It seems that there are truly no limits to integration of trading opportunities of local communities in the globalized world. A way to address the backlash against globalization?

How globalised should one get?

Carnegie Europe in a latest report by Suyash Rai and Anirudh Barman have brought out a comprehensive overview of India's engagement with globalization in trade, climate negotiations, data sovereignty, global finance and digital taxation. 

Titled India:Testing Out New Policies on Globalization", it concludes that India's engagement with the global order has changed since 2010 - towards a more inward looking strategy. 

What should a country's strategy be with respect to global economic engagement? Should it be based purely on national interest or working towards a larger "global good"? How much must one liberalise and when? How should we decide on the pace of liberalisation? How do we account for the winners and losers of globalization? Should internal regulatory reform in sectors be driven by an outward looking reform oriented policy or an inward looking policy? Should domestic reform be driven by external pressures? How important are national champions in a country's growth trajectory? Should they grow in a protected environment or facing the globalized world? How does one set the agenda in global rule making? Will being inward looking disengage a country from crafting the rules? Is there a balance that can be brought between becoming globally competitive and liberalisation? 

Environmental protection, domestic implementation and trade - there is a link!

(https://www.bloomberg.com/news/articles/2022-02-10/u-s-requests-mexico-talks-on-marine-environmental-obligations)

An interesting trade issue with an environmental tinge has come up of late. It is reported here, here and here. The United States has sought consultations with Mexico under the provisions of the United States Mexico, Canada Agreement related to the implementation of environmental protection to an endangered species of fish (vaquita porpoise) and illegal trafficking of totoaba fish. It was based on this complaint by environmental groups.The Mexican laws prohibit it but the claim here is that it is not enforced well and the illegal activities endangering the environment exist.

I am not going into the facts of the case but more on the issue of provisions of trade agreements and what impact they can have on possible international actions. the USMCA is essentially a trade agreement but has a number of chapters covering digital trade, state-owned enterprises, competition, anti-corruption, good regulatory practices, labour and environment. Traditional FTAs do not cover as many areas or atleast do not have deep provisions in relation to most of these subjects.

A number of interesting issues arise when one sees this type of dispute coming up in the context of trade agreements. The link between the protection of the environment and trade effects comes to the fore:

1. Provisions of an international trade agreement can be used for enforcing environment standards as well as protecting the environment per se. the Environment chapter under the USMCA is quite broad in its scope and applicability.

2. Under Article 24.4.1 of the USMCA no "Party shall fail to effectively enforce its environmental laws through a sustained or recurring course of action" or inaction in a manner affecting trade or investment between the Parties, after the date of entry into force of this Agreement." It is also pertinent to note that for purposes of dispute settlement, "a panel shall presume that a failure is in a manner affecting trade or investment between the Parties, unless the responding Party demonstrates otherwise." Thus, there is a prima facie case that the responding party's failure to effectively enforce its environmental lawshas affected trade or investment. Thus, the complainant has to only establish that there is a failure to effectively enforce domestic environmental laws through a sustained or recurring course of action - a rather low threshold.

3. Is this a dispute only about protecting an endangered species or about impacting trade in terms of fishing? If it is the former, is it covered by a trade agreement? If it is the latter, what conditions re necessary to establish the link between non-implementation and its affect on trade or investment?

4. Sans this agreement, the battle to protect the vaquita would probably be a domestic one (in local courts) or in fora that are provided by multilateral environmental agreements. The USMCA has provided an additional, international forum. Is this the real strength of trade agreements - the ability to take up a wide range of issues of environment, labour, state owned enterprises in panel disputes to ensure compliance?

5. Whether this dispute would go all the way to a dispute stage is debatable. What it brings to the fore is the potential for a wide range of issues including weak enforcement of domestic laws in international fora. While ultimately the decision may be in favour of the respondent party, the capacity and preparation to engage with an additional level of compliance can be daunting and counter-productive for many countries.

Some would argue the environment is critical and endangered species must be protected irrespective of how we do it. The issue is what is the right forum for it.