Friday, 22 January 2021

Analysis 5 of the Brexit Deal: Environment and Climate Provisions

 



 

Markus W. Gehring, University of Cambridge; J.S.D. (Yale), LL.M. (Yale), Dr jur. (Hamburg), MA (Cantab). This short piece shares thoughts with the Marios Tokas and Markus W. Gehring, Briefing 4: The UK’s Draft Position - Exploring the basis for negotiation with the EU, CISDL Legal Brief 2020

 

Introduction

 

With the beginning of the new year, the relationship between the UK and the EU was fundamentally reset as the Brexit transition period ended and the new EU-UK Trade and Cooperation Agreement (TCA) came provisionally into force. This blog post looks at the provisions of the TCA on environment and climate change, following on from four earlier analyses on this blog, on: an overview of the TCA; the social security provisions; human rights; and dispute settlement. (Updated April 28 2021 to refer also to the final Article numbering of the TCA).

 

This new agreement is not just the first ‘less free trade’ agreement, but also contains a number of important innovations that are not normally found in free trade agreements (FTAs). This paper offers an initial, tentative review of the TCA and compares it with the UK and EU draft agreement texts on matters relating to the environment, particularly climate change.

 

It is worth noting that the TCA leaves the (limited) climate cooperation in the Withdrawal Agreement untouched. The Withdrawal Agreement recognised the need for close climate cooperation, particularly in the Ireland/Northern Ireland Protocol (Backstop) and includes a carbon price as an important element. However, it does not mandate the full participation of Northern Ireland in the EU Emissions Trading System outside the energy sector.

 

Despite the Political Declaration mandating no more than a discussion about climate cooperation, “both Parties could choose to safeguard strong climate legislation within a side agreement or a chapter of a new UK-EU trade deal.” As we indicated in 2019, much inspiration could be drawn from existing FTAs through ‘[a] combination of the most robust provisions – that ensure full compliance with the Paris Agreement and the highest level of ambition”, which could have the “potential to blaze a trail for deep climate cooperation in future free trade agreements, potentially for all Paris Agreement Parties around the world.” (Markus Gehring and Freedom-Kai Phillips, ‘Legal Options for Post-Brexit Climate Change and Energy Provisions in a Future UK-EU Trade Agreement’ (European Climate Foundation Paper, 2019)) The resulting set of TCA provisions is innovative in that it constitutes the “first trade agreement to make the climate crisis a ‘make-or-break issue” (See my comments to The Independent)

 

Preambles

 

Environmental protection and climate change feature prominently in the TCA Preamble. While the text of the preamble is similar to that of other EU FTAs, the TCA is the first EU FTA to immediately elevate climate change as an essential element of the agreement:

 

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

 

Due to its prominence in the preambular text, reneging on climate commitments by either party could lead to a material breach of the treaty and a subsequent suspension or termination. Notably, the three dimensions of sustainable development, namely the economic, social, and environmental dimensions, as underlined in the preamble are resonant of both the EU treaties and previous FTAs. The second relevant preambular paragraph is a new addition and uses language agreed to in the Withdrawal Agreement Political Declaration, underlining high levels of environmental protection and climate change ambition as priorities, while ensuring a level playing field for “open and fair competition and sustainable development”. Preambular language has proven to be a significant element of trade agreements, particularly in light of the WTO DSB in the US-Shrimp dispute, where preambular language was used to add colour and shading to their interpretation of Art. XX GATT.

 

Material Breach

 

Article 764 (previously COMPROV.5) declares the fight against climate change as a one of the bases for cooperation alongside democracy, the rule of law, human rights and the non-proliferation of WMDs. Further, Article 771 (previously COMPROV.12) affirms that Article 764(1) (previously COMPROV.5(1)) is an essential element of the partnership established by the TCA as well as “any supplementing agreement.”

 

In the May 2020 EU Draft, the collective goal of combating climate change was elevated to a guiding principle, informing the operation of the entire treaty and was consequently placed at its beginning. This strongly worded provision, with mandatory language, was left almost unchanged in the TCA; the only slight change incorporated the gender-neutral language of “human-caused” climate change, as opposed to “man-made climate change” found in the EU draft, with no difference to its material meaning.

 

The language is one of the strongest found in any trade agreement, declaring that “climate change represents an existential threat to humanity”, requiring 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 trading partners also commit to be advocates of the fight against climate change in international fora.

 

Essential elements are important when determining suspension or termination of a treaty in international law. The TCA contains also Article 772 (previously INST.35) on the fulfilment of obligations described as “essential elements”: a provision that displaces in part the customary principles contained in the Vienna Convention on the Law of Treaties. It allows either party to suspend or terminate the TCA or any subsequent agreement in whole or in part after a specific process which mandates consultations and qualifies the invocation of a breach of an essential element. The provision singles out the Paris Agreement and helpfully 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 for the purposes of this Article” meaning that it makes it somewhat easier to invoke the provisions when the object and purpose of the Paris Agreement is breached.  The TCA has thus become the first instance in which climate change is an essential element of a trade treaty. While the issue might be seen as essential for association agreements leading to EU Membership, this could potentially be the first agreement, provisionally in force, to contain climate change as an essential element, that is, a make-or-break issue.

 

Level playing field

 

Under ‘Title XI: Level Playing Field for Open and Fair Competition and Sustainable Development’, environment, climate change, and sustainable development more broadly, play a key role. The title is a slight misnomer as the obligations in these fields consist of non-regression obligations rather than any form of dynamic alignment, or indeed level playing field. The TCA, however, contains a quasi-unilateral set of measures that the Parties could adopt if divergence in these fields becomes too great in terms of ‘rebalancing measures’, subject to dispute settlement provisions.

 

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

 

Environment and climate (Chapter 7)

 

This chapter groups some of the provisions on climate change and emission trading that the EU had proposed, subject to consultation, a panel of experts and, more importantly, a Panel of experts for non-regression areas.

 

It delineates the areas of law that determine the “environmental levels of protection”, to include laws in the majority of the most significant areas of current EU legislation such as industrial emissions, air quality, nature and biodiversity conservation, waste management, marine and aquatic environment, chemicals, agricultural environmental impacts. Non-EU laws are only included if they are ‘common’ to the Member States meaning that not the highest level found in any of the Member States will be used but rather the UK would have to prove that a Member State law is common which might be very difficult to prove in the expert or arbitration process.  

 

There is a separate definition of the “climate level of protection”, somewhat controversially defined in part as the reduction and removal of greenhouse gases emissions: “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.” In law, that means a 37% reduction by 2030 based on 2005 levels for the UK.

 

Neither of these definitions reflects the new ambitions agreed within the EU of 55% reduction, nor do they align with the announced 68% reduction from 1990 levels for the UK. Evidently, this leaves some room for discretion for both trading partners with regard to their 2030 targets. Unfortunately, the 2050 objective is currently described in Art. 355(3) (previously 1.1.3) of Title XXI (Level Playing Field) as just an ambition: “Each Party reaffirms its ambition of achieving economy-wide climate neutrality by 2050”. The climate change definition also includes “the phase-out of ozone depleting substances”.

 

Article 391(2) (previously 7.2.2) contains one of the strictest formulations of a non-regression provision by adopting mandatory language prohibiting the weakening or reduction of levels of environmental or climate protection as defined in Art. 390(1) (previously 7.1) “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”, with the sole caveat that this regression shall not occur “in a manner affecting trade or investment.”

 

In my view this is a strong provision, despite the nominal caveat, as WTO panels have repeatedly interpreted “affecting trade” in the GATT and GATS as having an economic impact without any qualitative level beyond de minimis, for example 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.

 

 

or 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.

 

Art. 392 (previously 7.3) obligates both parties to “have in place an effective system of carbon pricing” and suggests that they give serious thought on linking their respective carbon pricing systems to preserve the system’s integrity and possibly increase its effectiveness. It is worth highlighting that both sides are now committed to a carbon price for “from electricity generation, heat generation, industry and aviation.” This commitment could support the ICAO CORSIA implementation or indeed domestic carbon pricing of aviation between both parties. It does not include shipping but then the EU discussions on expansion of the ETS to shipping are still ongoing but could start in 2023.

 

In keeping with the aim of not wanting to be bound by EU law, the parties agreed to be bound instead by “the internationally recognised environmental principles” (Article 393): principles to which they are committed through various multilateral environmental agreements: Particularly, “(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 provision could be interpreted as a stronger formulation of the TFEU’s “polluter pays” formulation, which simply states that the “polluter should pay”. 

 

Non-regression obligations include enforcement of environmental laws, including the obligation of 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” and that “those authorities shall have adequate and effective remedies available to them, including injunctive relief as well as proportionate and dissuasive sanctions, if appropriate; and 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, previously 7.5) These commitments are similar to the boarder Aarhus Convention access to justice obligations but include injunctive relief, costs and include the administrative not just the judicial process. The previous proposals about the independence of the Office for the Environment in the EU draft text was also dropped.

 

The enforcement of level playing field provisions follows a special panel process. The special rule on dispute settlement (Article 396, previously 7.7) highlights that in place of the general dispute settlement rules, Articles 408-410 (previously 9.1 to 9.3) of the level playing field provisions apply, which still includes the possibility of trade retaliation if the non-regression rule is breached.

 

Rebalancing

 

What makes these provisions particularly significant is the inclusion of the level playing field provisions, now called “Article 411 (previously 9.4): Rebalancing”. While both parties recognise that each Party has the right to determine 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,” they also acknowledge 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”, as similarly stated in the Political Declaration.

 

If “material impacts on trade or investment are arising as a result of significant divergences between the Parties”, Art. 411(2) (previously 9.4.2) gives each Party the right to take rebalancing measures that are strictly necessary and proportionate to address such a situation.  Even though this instrument is predominantly relevant for future divergence and does not considerably affect the non-regression obligations, it ensures that if one Parties goes further than the other it could adopt “rebalancing” measures in the future. While these would be automatic, they are reviewable by an arbitration process. It should be highlighted that “material impacts” should be seen as a relatively high barrier, meaning that every future divergence will not necessarily qualify for rebalancing measures. On the other hand, and given that there is an arbitration process available, any significant departure in the fields of labour and social, environmental or climate protection, or with respect to subsidy control could, in the future, qualify for “rebalancing measures.”

 

Environment and Sustainable Development (Chapter 8)

 

Unlike chapter 7 of the LPF provisions or the rebalancing rules, this Chapter is not subject to normal dispute settlement. It should be noted, however, that it is subject to both consultation and the well-known EU ‘panel of experts’ process, which several other EU FTAs have introduced. Generally, we should not underestimate the latter in its ability to shine a light on environmental shortcomings, as it can be quite important in practical terms.

The trade and environment provisions in the TCA in Chapter 8 are extensive. While the UK draft text was essentially not used, its influence is evident in the formulation of the provision on forests where present and future generations are mentioned:

 

“Article 403 (previously 8.7): 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.“

 

The provisions which integrate the sustainable development goals into the objectives of the “Chapter 8 on Sustainable Development” follows the EU Draft closely in its provisions on forests, biodiversity and climate change. A blackline reveals that the parties of the TCA weakened the language compared to the EU draft text by introducing in the provision of 8.5 on “Trade and Climate Change”:

 




Similarly, the provision on trade and biodiversity was changed, employing less binding and more optional language.


 


 


A dedicated provision in the main agreement, recognizing the importance of climate change, was derived from Art 2.42 of the EU Draft, as well as paragraphs 18, 75, and 76 of the Political Declaration, to a lesser extent. Like many 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 content can be traced to the EU-Japan Agreement, which was the first FTA to contain a comprehensive commitment to implementing the Paris Agreement. Under EU-Japan, each party commits to work together to realise UNFCCC aims, take steps to meet the objectives of the Paris Agreement, and promote trade as a means of reducing greenhouse gas (GHG) emissions and achieving climate-resilient development. Similarly, the EU Draft provision also envisioned a transition to a low GHG economy and climate resilient development. In addition, the Draft 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).

 

Article 403(3) (previously 8.5.3) does not mandate cooperation as such but now obligates the Parties to ‘work together to strengthen their cooperation’; but all EU proposed fora for climate cooperation were included in the TCA.

 

Conclusions

 

In sum, TCA contains the most far-reaching commitments toward sustainable development beyond broad facilitation and cooperation provisions, going considerably further than the more recent EU FTAs. The combination of elevating climate change to an essential element of the treaty, strong non-regression provisions and future balancing measures mean that in this field the TCA is trailblazing.

Barnard & Peers: chapter 22, chapter 26

Photo credit: MichealisScientists, via Wikimedia Commons

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