Introduction

The start of the new year marked a significant shift in the UK-EU relationship, ending the Brexit transition and ushering in the provisional Trade and Cooperation Agreement (TCA). This post delves into the TCA’s environmental and climate change provisions, drawing on prior analyses of the TCA’s overview, social security provisions, human rights aspects, and dispute settlement mechanisms. (Updated as of April 28, 2021, to reflect the final TCA article numbering).

This agreement is notable for being the first “less free trade” agreement and for incorporating innovative elements not typically found in such agreements. This paper provides a preliminary assessment of the TCA, comparing it with the UK and EU draft agreement texts on environmental issues, especially climate change. Notably, the TCA maintains the existing (limited) climate cooperation outlined in the Withdrawal Agreement. While acknowledging the need for strong climate collaboration, particularly regarding the Ireland/Northern Ireland Protocol (Backstop), and including a carbon price as a crucial element, the Withdrawal Agreement does not mandate full Northern Ireland participation in the EU Emissions Trading System outside the energy sector.

Despite the Political Declaration limiting discussions on climate cooperation, both parties had the option to establish robust climate legislation within a separate agreement or as part of the UK-EU trade deal. As previously suggested, existing FTAs could offer valuable insights through a “combination of the most robust provisions – that ensure full compliance with the Paris Agreement and the highest level of ambition,” potentially setting a precedent for strong climate cooperation in future trade agreements. The resulting TCA provisions are groundbreaking, establishing the climate crisis as a “make-or-break issue.”

Preambles

Environmental protection and climate change are prominently featured in the TCA Preamble. While echoing the language of other EU FTAs, the TCA breaks new ground by immediately emphasizing climate change as a core element:

“REAFFIRMING their commitment to democratic principles, to the rule of law, to human rights, to countering proliferation of weapons of mass destruction and to the fight against climate change, which constitute essential elements of this and supplementing agreements”

This prominent placement implies that failure to uphold climate commitments by either party could be deemed a material breach of the agreement, potentially leading to suspension or termination. The preamble underscores the economic, social, and environmental dimensions of sustainable development, reflecting both EU treaties and previous FTAs. A notable addition is a paragraph, drawn from the Withdrawal Agreement Political Declaration, highlighting high environmental protection and climate change ambition as priorities while ensuring a level playing field for “open and fair competition and sustainable development.” Preambular language carries weight in trade agreements, as demonstrated by the WTO DSB’s interpretation of Article XX GATT in the US-Shrimp dispute, where preambular language provided context and nuance.

Material Breach

Article 764 designates the fight against climate change as a fundamental pillar of cooperation, alongside democracy, the rule of law, human rights, and non-proliferation of WMDs. Furthermore, Article 771 affirms that Article 764(1) constitutes an essential element of the TCA partnership and “any supplementing agreement.”

The May 2020 EU Draft proposed elevating the shared goal of combating climate change to a guiding principle. This strong, mandatory language remains largely unchanged in the TCA. The only minor alteration replaces “man-made climate change” with the gender-neutral term “human-caused climate change,” without affecting the meaning.

This language, among the strongest in any trade agreement, acknowledges that “climate change represents an existential threat to humanity,” obligating each party to “respect the Paris Agreement and the process set up by the UNFCCC and refrain from acts or omissions that would materially defeat the object and purpose of the Paris Agreement.” Both parties also pledge to champion the fight against climate change in international forums.

Essential elements are crucial when considering the suspension or termination of international treaties. Article 772 of the TCA, addressing the fulfillment of obligations deemed “essential elements,” partially supersedes customary principles outlined in the Vienna Convention on the Law of Treaties. It empowers either party to suspend or terminate the TCA, in whole or in part, after a specific process involving consultations and qualification of the alleged breach of an essential element. Notably, the provision clarifies that “an act or omission which materially defeats the object and purpose of the Paris Agreement shall always be considered as a serious and substantial failure,” potentially simplifying the invocation of these provisions in cases of Paris Agreement violations. This makes the TCA the first trade agreement to establish climate change as an essential element, a “make-or-break issue.”

Level playing field

“Title XI: Level Playing Field for Open and Fair Competition and Sustainable Development” emphasizes the importance of environment, climate change, and sustainable development. While the title is slightly inaccurate, as obligations in these areas focus on non-regression rather than dynamic alignment or a level playing field, the TCA incorporates quasi-unilateral measures that parties could employ if significant divergences arise, subject to dispute settlement provisions.

Three chapters within the level playing field title are particularly relevant: non-regression rules (Chapter 7), rebalancing rules (Chapter 9), and sustainability rules (Chapter 8).

Environment and climate (Chapter 7)

This chapter consolidates provisions on climate change and emission trading, subject to consultation, expert panels, and a dedicated panel for non-regression areas.

It defines “environmental levels of protection,” encompassing laws in key areas of current EU legislation such as industrial emissions, air quality, nature and biodiversity conservation, waste management, marine and aquatic environment, chemicals, and agricultural environmental impacts. Non-EU laws are included only if “common” to Member States, meaning the UK must demonstrate the commonality of a Member State law, which could prove challenging in expert or arbitration proceedings.

“Climate level of protection” is defined separately, with a somewhat contentious inclusion of greenhouse gas emission reduction and removal: “for the Union, the 40 % economy-wide 2030 target, including the Union’s system of carbon pricing [and] for the United Kingdom, the UK’s economy-wide share of this 2030 target, including the United Kingdom’s system of carbon pricing.” Legally, this translates to a 37% reduction by 2030 based on 2005 levels for the UK. Notably, these definitions do not reflect the EU’s updated 55% reduction target or the UK’s announced 68% reduction from 1990 levels by 2030, allowing for some discretion regarding their 2030 targets. The 2050 objective is currently framed as an “ambition” in Article 355(3) of Title XXI: “Each Party reaffirms its ambition of achieving economy-wide climate neutrality by 2050.” The climate change definition also encompasses “the phase-out of ozone-depleting substances.”

Article 391(2) establishes a strict non-regression provision, using mandatory language to prohibit weakening or reducing environmental or climate protection levels, as defined in Article 390(1), “below the levels that are in place at the end of the transition period,” including “by failing to effectively enforce its environmental law or climate level of protection.” The sole exception is regression that does not “affect trade or investment.” This provision is robust, despite the caveat, as WTO panels have consistently interpreted “affecting trade” in the GATT and GATS as having an economic impact without a qualitative threshold beyond de minimis, as seen in cases like China – Publications and Audiovisual Products:

“The word ‘affecting’ covers not only measures which directly regulate or govern the sale of domestic and imported like products, but also measures which create incentives or disincentives with respect to the sale, offering for sale, purchase, and use of an imported product ‘affect’ those activities.” Panel Report, China – Publications and Audiovisual Products, para. 7.1450.

and EC – Bananas III:

“[t]he ordinary meaning of the word ‘affecting’ implies a measure that has ‘an effect on’, which indicates a broad scope of application. This interpretation is further reinforced by the conclusions of previous panels that the term “affecting” in the context of Article III of the GATT is wider in scope than such terms as ‘regulating’ or ‘governing’.217 (emphasis added, footnote omitted).” Appellate Body report, EC — Bananas III, para. 220.

Article 392 mandates both parties to “have in place an effective system of carbon pricing” and encourages consideration of linking their respective systems to maintain integrity and potentially enhance effectiveness. This commitment to carbon pricing for “electricity generation, heat generation, industry and aviation” could bolster ICAO CORSIA implementation or domestic carbon pricing for aviation between the two parties. While shipping is not included, EU discussions on expanding the ETS to shipping are ongoing and could commence in 2023.

To avoid being bound by EU law, the parties agreed to adhere to “internationally recognized environmental principles” (Article 393) through various multilateral environmental agreements. These include: “(a) the principle that environmental protection should be integrated into the making of policies, including through impact assessments; (b) the principle of preventative action to avert environmental damage; (c) the precautionary approach referred to in Article 356(2) (previously 1.2(2) [Right to regulate, precautionary approach and scientific and technical information]); (d) the principle that environmental damage should as a priority be rectified at source; and (e) the polluter pays principle.” The final principle could be interpreted as a strengthened version of the TFEU’s “polluter pays” principle.

Non-regression obligations encompass environmental law enforcement, requiring each party to ensure that “domestic authorities competent to enforce the relevant law with regard to environment and climate give due consideration to alleged violations of such law that come to their attention.” Additionally, these authorities must have “adequate and effective remedies available to them, including injunctive relief as well as proportionate and dissuasive sanctions, if appropriate.” The agreement also mandates that “national administrative or judicial proceedings are available to natural and legal persons with a sufficient interest to bring actions against violations of such law and to seek effective remedies including injunctive relief, and that the proceedings are not prohibitively costly and are conducted in a fair, equitable and transparent way” (Article 394). These commitments resemble the broader Aarhus Convention access to justice obligations but encompass injunctive relief, costs, and administrative processes in addition to judicial ones. Proposals regarding the independence of the Office for the Environment in the EU draft text were omitted.

Enforcement of level playing field provisions follows a dedicated panel process. Article 396 highlights that Articles 408-410 of the level playing field provisions, which include the possibility of trade retaliation for non-regression breaches, supersede the general dispute settlement rules.

Rebalancing

A significant aspect is the inclusion of “Article 411: Rebalancing.” While acknowledging the right of each party to establish its own “future policies and priorities with respect to labour and social, environmental or climate protection, or with respect to subsidy control, in a manner consistent with each Party’s international commitments, including those under this Agreement,” both parties recognize that “significant divergences in these areas can be capable of impacting trade or investment between the Parties in a manner that changes the circumstances that have formed the basis for the conclusion of this Agreement,” echoing the Political Declaration.

If “material impacts on trade or investment are arising as a result of significant divergences between the Parties,” Article 411(2) empowers each party to implement “rebalancing measures” that are strictly necessary and proportionate. While primarily relevant for future divergence and not significantly impacting non-regression obligations, this instrument ensures that if one party advances beyond the other, “rebalancing measures” could be adopted. Although automatic, these measures are subject to arbitration review. It’s worth noting that “material impacts” represent a relatively high threshold, implying that not all future divergences will trigger rebalancing measures. However, considering the availability of arbitration, significant deviations in labor and social, environmental, or climate protection, or subsidy control, could justify “rebalancing measures” in the future.

Environment and Sustainable Development (Chapter 8)

Unlike Chapter 7 or the rebalancing rules, Chapter 8 is not subject to standard dispute settlement mechanisms. However, it is subject to consultation and the EU’s “panel of experts” process, a feature of several other EU FTAs. The latter’s ability to highlight environmental shortcomings should not be underestimated, as it can have considerable practical implications.

The TCA includes extensive trade and environment provisions in Chapter 8. While the UK draft text was not directly adopted, its influence is apparent in the provision on forests, which mentions present and future generations:

“Article 403: Trade and forests

1. The Parties recognise the importance of conservation and sustainable forest management for providing environmental functions and economic and social opportunities for present and future generations, and the role of trade in pursuing that objective.“

Provisions integrating sustainable development goals into the objectives of “Chapter 8 on Sustainable Development” closely follow the EU Draft regarding forests, biodiversity, and climate change. However, a comparison reveals that the TCA language is weaker, particularly in Article 8.5 on “Trade and Climate Change”:

Similarly, the provision on trade and biodiversity was modified, opting for less binding and more discretionary language.

A dedicated provision in the main agreement, acknowledging the significance of climate change, was inspired by Article 2.42 of the EU Draft and paragraphs 18, 75, and 76 of the Political Declaration. Similar to other EU FTAs, the EU Draft would have committed both parties to “effectively implement the United Nations Framework Conventions on Climate Change, and the Paris Agreement of 2015 adopted thereunder.” This language can be traced back to the EU-Japan Agreement, the first FTA with a comprehensive commitment to implementing the Paris Agreement. Under this agreement, both parties pledge to collaborate towards achieving UNFCCC objectives, pursue the Paris Agreement goals, and promote trade as a means to reduce greenhouse gas emissions and achieve climate-resilient development. The EU Draft provision also envisioned a transition to a low-GHG economy and climate-resilient development. Moreover, it employed innovative language, extending climate commitments to encompass EU-UK cooperation on:

“Trade-related aspects of climate change policies and measures bilaterally, regionally and in international fora, as appropriate, including in the UNFCCC, the WTO, the Montreal Protocol on Substances that Deplete the Ozone Layer, the International Maritime Organisation (IMO) and the International Civil Aviation organization (ICAO)” (Art. 2.42 para. 3 EU Draft).

While Article 403(3) doesn’t mandate cooperation outright, it obliges parties to “work together to strengthen their cooperation.” Notably, all EU-proposed forums for climate collaboration were incorporated into the TCA.

Conclusions

The TCA contains significant commitments to sustainable development, moving beyond general facilitation and cooperation provisions and exceeding recent EU FTAs. By designating climate change as an essential element, incorporating strong non-regression provisions, and including future balancing measures, the TCA breaks new ground in this field.

Barnard & Peers: chapter 22, chapter 26

Photo credit: MichealisScientists, via Wikimedia Commons