The Growing Significance of Environmental Issues in Trade: 

- Changes and Implication in the Environmental Provisions of Trade Agreements 

Research Institute: Institute for International Trade(IIT)

Authors: Deputy Director Songi Seol, Manager Kyounghwa Kim, Kyu Sub Shin 

The increasing concern surrounding climate change and ecological protection is stimulating the efforts to converge environmental issues and trade policies within the realm of multilateral and bilateral trade systems. A single state cannot stop environmental destruction; such actions, singular attempts instilled by one country, may conflict with the tenet of international trade rule: free trade. As the growing sense of environmental crisis is reaching an all-time high and as countries are introducing a wide array of environmental policies, implementing enforceable trade rules is a growing necessity. 

The WTO sought ways to balance the multilateral trading system, sustainable development, and environmental protection since establishing the Committee on Trade and Environment (CTE) in 1994. The Doha Development Round in 2001 and the WTO Environmental Goods Agreement (EGA) are cases in point. Unfortunately, despite these efforts, the results have been limiting. However, members of the WTO remain committed to more tangible action for sustainable development and the environment, such as the newly launched the Trade and Environmental Sustainability Structured Discussions (TEESSD) and the recent 12th Ministerial Conference (MC12) to conclude the fisheries subsidies negotiation. Furthermore, GATT/WTO began to rule in support of stricter environmental policies and, in some disputes, justified trade restrictions for the sake of the environment.

In bilateral trade agreements, the U.S. and the EU are at the forefront of implementing and expanding environmental policies. The U.S. has included environmental provisions in all of its FTAs ever since first introducing it in the North American Free Trade Agreement (NAFTA) back in 1994. The United States-Mexico-Canada Agreement (USMCA), which came into effect in 2020, boasts of the strongest, most comprehensive, and most advanced set of environmental obligations. The USMCA environment chapter: seeks to improve air quality; protects coastal and marine environments; promotes conservation and combats trafficking in wildlife, timber, and fish; and includes other newly emerging environmental issues. At the same time, it requires the Parties to effectively enforce their environmental laws. While the USMCA failed to have Paris Agreement commitments and other climate issues, it is predicted that the Biden administration will add provisions on climate change response in the chapter. 

On the other hand, the EU had set aside a whole chapter, titled Trade and Sustainable Development, for labor and environmental issues. This decision reflects the idea that environment and labor play complementary roles in achieving sustainable development, the ultimate goal. The EU-Korea FTA, signed in 2011, was the first-ever EU FTA to include a chapter on sustainable development. The EU continued to implement the said chapter in all bilateral agreements while expanding sustainable development-related provisions in the agreement. 

The E.U.’s sustainable development chapter does tackle a comprehensive list of environmental issues such as climate change. But, the chapter is not binding, nor is it subject to enforceable dispute settlement procedures. Currently, the European Parliament is pushing back on ratifying the EU-Mercosur trade agreement, citing a lack of concrete actions on Brazil’s part to enforce the environmental chapter. Some of the EU member countries argue that the sustainable development chapter must become more binding. 

2021 is the first year nationally determined contributions (NDCs; submitted in 2020) will start to come into effect, and nations are announcing the policies to achieve their carbon neutrality goals. The EU recently unveiled the outline of the carbon border adjustment mechanism legislation, and the U.S., too, is showing signs of movement to linking climate change issues to trade policy. Rest of the members of the WTO are also engaging in active, multilateral discussions regarding environmental issues. 

Environmental protection rules are taking center stage in trade policies, and therefore, Korea must take a stance and preemptively prepare for potential environment-related trade disputes. On a national level, it will be critical to become an active participant in the multilateral discussion about trade and environment and vocalize our position in developing environment-related trade rules as befitting of our industrial competitiveness and status as a middle power. Meanwhile, the private sector must analyze the impact and respond appropriately to the environment-trade policies of the major countries (such as the carbon border adjustment mechanism) while honing the business' sustainability edge.