Analyzing the legality of the EU Commission’s proposed withdrawal of preferential tariffs for third countries when cooperation on migrant returns ‘fails’--an unholy alliance of trade and migration?

 

 

Marion Panizzon, Senior Research Fellow, World Trade Institute, University of Bern*

 

*Privat-Docent, Dr. iur., LL.M., Senior Research Fellow, World Trade Institute, University of Bern and Legal Consultant, World Trade Advisors, Ltd. Geneva. I thank Dr. Alan Desmond, Leicester University for his thoughtful comments on several earlier drafts. I’m grateful to Dr. Christian Häberli, World Trade Institute, for his critical read of an earlier draft in light of current WTO law and practice.

 

Photo credit: NOAA, via Wikimedia commons

 

 

As a strategy to rebalance uneven negotiating positions, the ‘comprehensive approach’ defined in paragraph 11 of the Global Compact for Safe, Regular and Orderly Migration (GCM) sets the stage for rendering more attractive EU trade and EU external migration policy to third countries. However, the comprehensive approach, considered a component of ‘shared responsibility’ under the GCM is often confounded with conditionality, because both might, according to Hocquét 2023, expand the radius of migration policies, to areas outside its immediate realm. There are marked differences though, since conditionality establishes a  co-dependency between measures the EU wishes to implement, with areas of interest to the third country, being education, energy, natural resources, climate adjustment, public health (Peers 2016). Conversely, the comprehensive approach while based on mutuality, rather than reciprocity, ideally strives to create the win-win-win situations, in most cases, breaks down to integrating safe pathways with border management (Vitiello 2022)

 

In trade, ‘rights-based conditionality’ for obtaining trade preferences, has been criticized by academics (Hafner-Burton et al. 2019) and UNCTAD alike (Irish 2007), and materializes when preferential import duties are leveraged for securing the developing or least-developed country’s cooperation to fulfill an EU public good, including combatting narcotics trading, child labor and worker exploitation,  as well as the smuggling and trafficking. At the outset, the trade and development chapter inserted in the 1960s into the General Agreement on Tariffs and Trade (GATT) had empowered developing and least-developed countries to catch-up. One such avenue came in the shape of GSP developed under the auspices of the UNCTAD in 1968 and anchored by several temporary waivers into GATT, to protect infant industries thru non-reciprocal treatment (Michalopoulos 2020). Today, the expectation on trade preferences is that they fulfill non-trade policy objectives (NTPO), which is an attribution that distorts the original idea behind the GATT Art. XXIV and the subsequent Enabling Clause, permanently waiving the most-favored nation treatment otherwise due if a WTO Member lowers a tariff(ECDPM 2020).

 

Initiated in 2021, the EU Commission’s reform of Regulation EU 978/2012 Generalized System of Preferences (GSP) for developing and least-developed countries, proposes to expand by the area of migrant readmission, the cooperation the EU requires from beneficiary countries for exports from those countries to benefit from a lower or zero import duty on two-thirds of tariff lines under standard GSP, a zero duty on the same tariff lines, conditioned on the ratification of 27 conventions (GSP+) or a zero import duty on all products from LDCs except for arms and ammunition (Everything-but-Arms, EBA)  into the EU. Adding to the EU’s long list of incentives to buy origin countries’ approval for sending back their citizens in irregular stays in the EU, the Commission’s proposal, critically viewed by the EU Parliament, NGOs, and academics alike, would have complemented that listing by adding preferential trade initiatives to it. Inversely, the GSP Regulation, equally boasting an ever increasing to-do list of criteria countries need to fulfill in order to enjoy the preferences, has now been topped by the criteria of readmitting (irregular) migrants.

 

The legality of both the EU external migration system with the new addition of trade and the EU GSP regulation with its expansion to include migration policy, poses challenges of legality and practicability under WTO law, as academics and practitioners have analysed and this post discusses.

 

In its reform proposal of EU GSP Regulation 978/2012, the EU Commission suggest for the very first time, to interlace EU external migration policy, notably EU readmission agreements and cooperation on assisted and voluntary return to the EU’s GSP for the period of 2024-34. In particular the proposal foresees to up the ante of EU Regulation 978/2012 withdrawal of tariff preferences procedure by adding migrant readmissions as one benchmark to measure good governance, the former which is, alongside sustainable development and human rights one of the areas of cooperation which can conditionality rewards either positively or which is sanctioned off negatively, by the withdrawal or suspension of preference, ranging from visa relaxation, development cooperation or lowered import tariffs into the EU. As Grundler and Guild 2023 have observed, the negative conditionality (Sabourin and Jones 2023) which the Commission would like to see, is insofar not surprising, as EU member states have traditionally taken to constructs double binds, pitting legal pathways against migration control (Garcia-Andrade 2020:260) in bilateral migration agreements, with questionable outcome.

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Whereas the EU has inserted Art. 25(a), a readmission clause in its 2019 revision of the  Schengen Visa Code (Bisong 2019; Grundler and Guild 2023), the Commission’s activating the Union’s common commercial policy Art. 207 TFEU, to secure cooperation on readmissions, uses a new tool for the same purpose, yet without specifying the periodicity of review of third countries’ cooperation or lack thereof, as Art. 25a does. Several human rights organizations have remarked in response to the Commission’s proposal and the Council’s endorsement in 2022, that the insertion of migration, is shaky on more than one legal ground (Human Rights Watch, FIDH, ECRE).

 

Firstly, withdrawing the preferential tariff treatment, which LDC and developing countries obtain under one of the three pillars of the GSP, GSP+ and Everything-but-Arms (EBA) treatment might be unlawful under the WTO Appellate Body jurisprudence, as shown by DG External Policies’ Report on the proposed GSP reform (2022). In that WTO decision of 2004, the benefit of lower tariffs must be granted on a non-discriminatory basis to ‘similarly situated beneficiary countries’ and a clear link between the benefit granted and the ‘development objective’ be made. Hence, the idea of threatening a developing or least developed country with the withdrawal of a tariff preference, is not new, as Peers (2016) points out (534-537), but the EU Parliament in its criticism of the EU Commission’s proposed new EU GSP Regulation  had legitimate concern, that the EU would be creating the similar situation that had led the WTO Appellate Body ruling in EC-Tariff Preferences, to condemn it and which had put a stop to any selective imposition of trade preferences (Bartels 2003).

 

Up until this day, the Commission rewards countries of origin for cooperating on forced returns, border screening, information campaign, via visa relaxations for diplomatic staff, journalists, by facilitating remittances transfers and lowering costs, by a promise of better integration of third country nationals (Peers 2016). In so doing, the EU has treated different migrant origin countries, differently, yet, so far, without risking WTO incompatibility, since if visa, remittances or integration remain outside the scope of the WTO. The situation is different, given the recently suggested negative trade conditionality, contingent on withdrawing tariff preferences, when a readmission cannot take place. It implies that the Commission must define ‘objective’ benchmarks around readmission, for when that tariff treatment is to be removed in addition to treating similarily situated countries, identically.

 

Secondly, the EP during the 2022 inter-institutional trilogues between Council, Commission, ascertained that tying preferences to readmission of one’s own nationals, might be too far removed a conditionality. Recently, the EP’s international trade (INTA) committee on 19 September 2023 voted in favour of extending the current EU GSP scheme to 31 December 2027, which the Commission proposed to avoid the current GSP lapsing in light of the lack of agreement on the main proposal, until the Parliament and Council can agree on how to update that Regulation. Meanwhile, INTA has not further entered into discussions about circumscribing the exact legal scope triggering a potential tariff withdrawal, whether a non-implementation of an EU readmission agreement or of a bilateral readmission agreement must be shown, or whether the refusal to negotiate such an agreement in the first place is sufficient to trigger the clause, or, as the DG External Relations suggested, the non-compliance with international obligations under a EURA. Nonetheless, the Commission’s proposal currently stands at the brink of extinction. Yet, it seems timely to analyse its legality with WTO and international obligations, as a final vote, after EP elections, could overturn the INTA’s refusal to follow the Commission’s proposal.

 

In this blogpost, I discuss legality of the EU’s reform proposal under two WTO instruments, the Enabling Clause 1971, setting the legal basis for the Special and Differential Treatment of trade in goods from developing and least-developed WTO Members and the LDC Services Waiver 2011, to understand which out of the two takes origin country concerns seriously. In so doing, I draw on the discussion started by Vidigal (2023) and Tans (2023) about why the  Commission proposal conflicts with WTO rules. In so doing, I touch upon the number of preferential trade agreements (PTAs) which, similarily, have used a trade component as the quid-pro-quo for obtaining a partner’s cooperation on irregular migration. Since PTAs pit trade in services, and thus a form of legal pathways (as opposed to trade in goods) to return migration, within their chapters on the temporary movement of natural persons, the conditionality is more closely or directly contingent on people-on-the-move.

 

Consequently, the EU Commission were better advised to negotiate such openings of its services markets for service supplying natural persons, from countries of origin, within one of its deep and comprehensive free trade agreements (DCFTA) than to go freestyle by attempting to match migrant readmission with trade-in-goods. Not only are countries of origin deeply in need of docking onto the global services markets, but that linkage to readmission, at least in theory, appears to be an immediate one, since services is the only trade flow, hinging, for face-to-face delivery, directly on human factor mobility. Finally, there is in WTO law, a legal basis for enabling such one-way flows of natural persons from developing and least-developing countries (LDCs), without this asymmetric trade posing problem under the WTO GATS most-favored nation clause (MFN), as discussed below.

 

Aggregated conditionality as catalyst of informalizing EU migration cooperation

 

As Frasca (2023) and Desmond (2023) point out, soft law, in the EU external migration context, re-asserts EU sovereignty in instances, where a legally binding obligation on shaky grounds. The key catalyst to jumpstart the process turns out to be conditionality, whitewashed as the comprehensive approach, because it allows to create the traction that soft law lacks. Consequently, conditionality substitutes for a norm failing to deploy a legally binding effect, whether a country refuses to embrace the internationally binding quality of the duty to take back one’s own nationals or considers not being concerned by the duty to take back one’s own nationals. However, the role of conditionality when the EU deploys its armada of informalized migration arrangements, whether partnerships, technical readmission arrangements, standard operation procedures, dialogues still needs more research.

 

Under the New Pact on Migration and Asylum of 23 September 2020, conditionality was up for a supposedly ‘fresh start’ with the  Communication, Attracting Skills and Talents to the EU (27 April 2022), spearheading the Talent partnerships complementing EU mobility partnerships as a multidimensional response to the 18 EU readmission agreements (2023) and 6 arrangements, which regularly fail for non-reciprocally engaging with the sending country ‘s interests and needs (Moraru, Cornelisse and de Bruycker 2022).  Whereas the Commission was not yet breaking with positive conditionality driving much of the EU external migration policy, conditionality’s new focus on vocational and professional upskilling of trainees thru circular Talent Partnerships bears evidence that the Commission is on the lookout for new anchors by which to reinvigorate conditionality, and its EU external migration policy (Tsourdi, Zardo and Sayed 2023).

 

Whereas negative conditionality, which retributes a third country for its lack of cooperation on implementing EU migration policy, has prompted Ethiopia and Afghanistan to sign non-binding readmission declarations (SWP Berlin 2020), the threatened suspension of development aid, has never materialized. Speaking against negative conditionality, as the one the Commission proposes for trade preferences is that raising visa processing charges has not encouraged cooperation (Grundler and Guild 2023), nor is cutting development aid the appropriate penalty for a country such as Nigeria, where remittances are high and thus, installing of vocational training makes more of a difference (Nigeria-Switzerland Migration Partnership of 2011).

 

In 2021, against the background of arrivals by at-sea crossings and over the central route to Europe (ICMPD 2023) tripling, the Commission introduced a new feature to its palette of negative conditionality for non-cooperation over irregular migration. Under its Proposal for a revised GSP Regulation, COM(2021) 579 final for 2024-2034, the EU would now withdraw preferential trade benefits, either under the GSP+ (Generalized System of Preferences) granted to the seven EU beneficiaries (Bolivia, Cape Verde, Kyrgyzstan, Mongolia, Pakistan, Philippines, Sri Lanka), or for least-developed countries (LDCs) under its Everything-but-Arms (EBA), if ‘beneficiary countries on migration and the readmission of rejected asylum seekers’ refuse to cooperate (Guild 2023 in this blogpost).

 

 

Along a well-trodden path—forerunners to identifying trade as leverage for incentivizing migrant returns

 

For the past decade or longer, EU Member States have sought to level the playing field over migration policy among North and West African countries of origin and transit, by proposing one-size-fits-all bilateral migration management, on the basis of Art. 79:5 TFEU in the shape of agreements linking legal pathways to cooperation on returns. France’s agreements on the joint management of migration flows and solidary development for example, stepped up labor admission quotas, or created the same new categories of admission, for all of the seven African countries willing to sign on to a readmission clause. The suggested EU GSP link to cooperation on migration, would run counter to precisely those efforts, that remove treating certain origin countries better than others, thus risking to re-install post-colonial privileges (Robertson 2017).

 

Another forerunner to the prospective trade and (return) migration linkage, is the EU Compact with Jordan which reduces tariffs to duty-free, quota-free exports (DFQF) for products manufactured in Jordan with 10% (first 2 years) and later on, 15% ‘refugee content’. For becoming eligible for this Everything-but-Arms (EBA) privilege, Jordan had to temporarily accept a least-developed country (LDC) status. Whereas Jordan was compensated for employing refugees, in an afterthought, the DFQF occurred with a view to reducing secondary onward movement of refugees to Europe (Lenner 2020). If the EU’s Jordan Compact targeted refugees and not migrants, it was critically received by scholars (Gordon 2021) and advocates of fair and ethical recruitment under ILO standards.

 

Tariff Reduction for Return Migrations? Criticism of the proposed EU GSP 2023-34

 

Trade preferences can be critical for the survival of a developing country on the global market, and their withdrawal carries ethical consequences, as discussed by Tans 2023. Questions about the legality of the EU GSP scheme under WTO law (ODI Report 2023) also arise. Firstly, for Tans, proposing to retract tariffs if migrant returns seem low (to the EU), is not immediate enough a link to human mobility (EP in-depth analysis of the Commission’s proposal of January 2022). In this line of thinking, the Commission would first need to open legal pathways for migrants under the temporary movement of persons, the so-called Mode 4, under an economic partnership agreement (EPA) before it could retract trade preferences in goods.

 

If we recall how Mode 4 GATS stands as the only format of international human mobility that is liberalised internationally, under the multilateral WTO/GATS (Chetail 2014), Mode 4 presents the very connection between trade and temporary migration that is missing from the EU’s proposal. Labelled ‘mode 4’ of Art. 1:2(d) GATS this temporary mobility is a sub-form of international migration. However, it is limited under an excruciatingly narrow definition, to a) temporary stay abroad, b) not entering the labor market (only the services) of the host country c) opened only under commitments by member states d) categories of persons are narrowly defined, often clustering in the highly-skilled segments (Trachtman 2009;). As (Tans in this blogpost) suggests, the EU conditionality working through Everything-but-Arms (EBA) and GSP+ should only apply to those nationals who move under the EU’s GATS mode 4 commitments, if they fail to return voluntarily at the end of their legal temporary stay.

 

Looking for Alternatives 1: Cotonou Convention’s Cooperation on Migrant Returns

 

To this day, the temporary, cross-border movement of natural persons, the so-called Mode 4 has been missing out of EU economic partnership agreements (EPA) with North African countries (Cottier and Shinghal 2021), such that threatening to withdraw tariff preferences under the EU GSP, or even suspending the cross-border mobility so as to penalize countries in North Africa for refusing to take back their own citizens in irregular stays abroad remains illusory. In addition, speaking against penalizing countries of origin for refusing to take back citizens, and thus, against applying the EU’s revised GSP, is Art. 74 on ‘return and readmission’ of the 15 April 2021 negotiated agreement text initialed by the EU and the ACPs chief negotiators -- a follow-up to the Cotonou agreement  -- restates Art. 5 Cotonou agreement with the exception of a return clause which is free from any conditionality—neither is there a negative consequence for failing to take back one’s nationals, nor are typical migrant host countries required to open their labor markets to potential migrant workers.

 

Looking for Alternatives 2: Preferential Trade Agreements and ‘Embedded’ Returns

 

Several economic partnership agreements (EPA) have been consolidating an emerging opinio juris of obliging the origin country to take back their own nationals, once these have terminated their temporary stay to supply a service abroad:  Japan’s EPAs with the Philippines (2008), Indonesia and Vietnam (2009) codify a return clause, which is linked to a services trade commitment. It spells out a requirement for the Filipino, Vietnamese nurses and caregivers to return home, who have failed Japan’s national board examination (NBE). Because this return clause applies solely to the closed-circuit of the categories of persons whose movement the EPA facilitates (Efendi at al. 2013; Naiki 2015), I label it ‘embedded return’. Japan’s EPA of 2019 with the EU, Annex 17 imposes a duty of cooperation on worker’s returns, even if it remains generic when compared to Japan’s EPA with the countries mentioned above. Unlike for what the EU Commission envisages with reforming its GSP regulation, Japan’s EPA carry no negative consequences if either Vietnam, Indonesia or the Philippines fail to cooperate on returns.

 

A Definitive ‘No’? Uncertain Legality of a Trade - Return Migration Linkage under WTO Law

 

As Carzaniga and Sharma 2022 note, WTO Members’ right to regulate emerges from Art. VI GATS. As such, there is a discretionary space under Art. VI, but not an unlimited one, which would permit biometric border surveillance and data collection at the border, under the condition that certain criteria, including transparency are met. However, such broad reading contrasts with the GATS Annex on the Temporary Movement of Natural Persons which stipulates that measures that regulate entry and stay remain under the sovereign right of WTO Members and fall outside the scope of the WTO. Under this narrow interpretation, any PTA linking return duties conditionally to the temporary movement of workers would, in theory, be in breach of the GATS Annex. To summarize, the EU Commission might be infringing WTO/GATS by proposing a GSP reform since the multilateral trade rules of the WTO/GATS Annex preclude a legal connection being made between migrants’ return and trade in services. Beyond the uncertain legality of the Commission’s proposed reform of Regulation EU 1083/2013, there are political economic reasons why arguing in favor of the reform would be bad judgment, discussed further below.

 

People-on-the-move and the ‘new’ EU GSP 2024-34: Moving to the GATS Services Waiver instead?

 

A key consideration speaking against using the revision of the EU GSP to manage the EU’s external migration policy, are the uncertain consequences for countries non-complying with the GSP+ or EBA? In general, countries subject to the GSP+, need to ratify the 27 international law conventions on good governance, labor and human rights, as well as environmental protection, for becoming eligible for the preferential tariff treatment. If the EU deems there is a failure to fully implement provisions of these 27 Conventions, it will normally suspend the preferential tariff and the country’s exports move back to the higher regular tariff (Cambodia in 2019). Now, if the EU considers a ‘failure to cooperate on return migration’ in the same rationale as the 27 Conventions, it conjures a questionable linearity between irregular migration and a non-existent international convention about protecting migrants’ rights. Naturally, the ILO Migrant Workers’ Convention could embody the 28th international convention countries of origin of migrants would be asked to sign to receive the tariff privilege, so as to create a closer lineage.

 

However, since no EU Member State has signed onto to it, this option falls out of question, even if thematically it would address the linkage the EU desires to build. If not the ICMWR, would the 7 GSP+ beneficiaries of the EU, which are Sri Lanka, Cap Verde, Pakistan, the Philippines, Kyrgysztan, in addition to ratifying the 27 UN Conventions be required to sign onto EU readmission agreements, or EU mobility partnerships or the UN anti-smuggling/trafficking protocols as the benchmark for obtaining the lower tariff? Would cooperating with a single EU Member State thru a bilateral readmission agreement be sufficient to hold off higher tariffs on cotton T’shirts or cocoa products or coffee? By the very act of withdrawing trade preferences, if the EU perceives efforts of reducing irregular migration as waning, becomes comparable to suspending tariff preferences from a beneficiary country where corruption starts to spread, narcotics are being produced or trafficked, labor standards are neglected, human trafficking and smuggling take place. In this logic, irregular migration becomes an act that is to be penalized and sanctioned, in the same order as narcotics trading, corrupting business practices or human trafficking and smuggling, which ethically and legally is a questionable nexus to make.

 

There are better ways to incentivize countries of origin to take back their citizens in unlawful stays abroad than to withdraw tariff preferences. One is to use the LDC Waiver of WTO/GATS whereby a host country increases sectoral labor market openings in services for nationals of a country of origin. This scheme has the advantage of closely matching with the EU Talent Partnerships, the former which are sending potential migrants for a training and upskilling to Europe. In concreto, the mechanism is the following: if the LDC cooperates with the EU on irregular migration, it shall obtain additional market access on mode 4 or mode 3 for its natural persons involved in service provision. Under this paradigm, unlike with for the GSP+/EBA, migration is neither treated as a criminal activity that needs to be contained. In fact, the EU is already testing an LDC Waiver type of model in its Skills Partnerships, which ‘buy professionals from an LDC to deliver services in Europe’ (WTO Council for Trade in Services, Webinar on LDC waiver 2-3 June 2021).

 

In preferring the LDC Waiver alternative to vamping up the GSP, the EU would make a strong statement that cross-border mobility, in the first instance, occurs for improving migrants’ wellbeing that it is ‘cooperative rather than punitive’ (FIDH 2023).

 

In addition, the EU GSP+/EBA reform, as proposed by the Commission, discredits its pilot projects on labor migration and skills partnerships, which already have incorporated a return obligation for all the trainees sent to an EU Member State for upskilling. Even if the contentious term of ‘return’, is replaced by the expression of a so-called ‘soft landing’ back home (Garcia Andrade 2020), these EU Talent Partnerships are anything but free from return obligations. Hence, to now enlist the GSP+/EBA scheme for securing even more returns, puts developing countries and LDCs at risk of an additional sanctioning mechanism (Bisong 2022).  

 

Exploring the ‘LDC Waiver’: Securing Cooperation on Returns by Providing Legal Pathways on Mode 4

 

Special and differential treatment (SDT) for the Global South under Art XIX GATS (OECD 2016) calls on  WTO Members to ‘give special priority’ when opening services markets to exports of LDCs.  On the basis of Art XIX, WTO Members took a Ministerial Conference decision on 17 December 2011 to install a LDC services waiver. Since WTO Members were not using it, LDCs were encouraged to make a collective request under the lead of Uganda, to indicate in which sectors of their services industries a waiver of the MFN and a removal of discriminatory barriers  to national treatment (including quotas, licensing requirements, authorization procedures, labor market tests or professional qualifications) could prove development-friendly. By 2015, 50 WTO Members had made offers, and at the Nairobi Ministerial Conference, a decision was adopted to prolong duration of the waiver until 2030.

 

Under the LDC waiver, the EU, US, Canada, Singapore offer ‘best Free Trade Agreement (FTA)-level’ or in 25% of cases above best FTA level, which is the only way for LDC service suppliers to enjoy a competitive advantage on the global services markets. The LDC waiver provides predictability to service traders who otherwise operate under high volatility, so that a sustainable services industry can grow in LDCs and is more in line with day-to-day reality of LDC economies, many of which are no longer export-based in terms of goods. Australia’s opening of warehouse services beyond the categories it has liberalized in the WTO is promising, while Switzerland opened insurance services to LDC providers with lower qualification/notification requirements.

 

Special and Differential Treatment (SDT) under the early years of GATT was limited to developing countries granted preferences amongst each other (1971) and later on, industrialized countries followed suit, when the GATT Enabling Clause L/4903 0f 1979 transformed the 10-year waivers  of the 1970s into permanent ones. In contrast, the LDC Services waiver, while based on the idea of SDT, requires countries, like the EU, to offer non-reciprocal market access in sectors or modes of services delivery of interest to the services exports of developing and least developed Members. Moreover, it is temporary without a clear scope for discretion over how much reciprocity the grant-giving country is prepared to offer. Such facts, including that SDT is generally considered more difficult to implement than trade facilitation (Elsig 2010), render the Commission proposal difficult to digest and even more treacherous to implement. On the upside, the causality of openings in all four modes of services supply or Mode 4 only, would make the case to embed international people-on-the-move and their forced returns within the Services Waiver more plausible, because the fourth mode of service delivery, the so-called Mode 4 of GATS is the only WTO entry point for the temporary movement of natural persons, which can involve migrants, including in irregular stays, depending on national immigration and labor legislation.

 

Conclusions

 

In this blogpost I put forward the case for subsuming a compensation mechanism for countries of origin taking back migrants in irregular stays under the LDC Services Waiver of the GATS, rather than under the 1971 GATT Enabling Clause legitimizing the sequence of EU GSP Regulations.

 

The EU Commission’s heralded ‘positive outcome’ for states cooperating on migrants’ return, appears to be a negative conditionality of withdrawing tariff duties. As such it is less attractive than pledging market access under the LDC Waiver, in more than one way. Firstly, sending countries are often serving as regional services hubs in construction, logistics, and production-related services or becoming global players in tourism and healthcare, such that benefitting from the LDC Waiver, if cooperating on return migration with the EU, resonates with the Global South’s evolution from export-based manufacturing to service economy.

 

Secondly, source countries are more likely to embrace a pledge by the EU to open a services sector, in exchange for ensuring a functioning readmission procedure, than they will actually benefit from already low tariffs. Therefore, to co-opt the LDC Waiver for migration management leads to a fuller integration of countries of origin into global value-chains.

 

Thirdly, the LDC Waiver works without attaching conditionalities. This is key because having too many conditionalities can increase the compliance costs on developing and least-developed countries and backfire, as a disproportionate amount of resources is invested into meeting criteria, rather than on the ground. (US Congress, GSP 2022).

 

In sum, the LDC Waiver not only responds to the WTO’s call for special and differential treatment of developing countries, but it offers more credibility to the revised EU GSP 2024-34 than the GSP, because of its co-ownership by countries of origin. The LDC Waiver opens up valuable export markets in exchange for a duty of taking back one’s own citizens. It would certainly be more in line with the WTO Marrakech Agreement’s Preamble which stresses ‘the need for positive efforts designed to ensure that developing countries …secure a share in the growth in international trade’ over negative retribution as a way to elevate nations out of poverty.

 

 

 

 

Free trade v freedom of association? The EU/South Korea free trade agreement and the panel report on the EU challenge to South Korean labour law

 

 

Steve Peers, Professor of Law, University of Essex

Has international trade liberalisation, in the form of the World Trade Organisation and free trade agreements between its Members, aided economic growth generally, or rather increased gaps between the rich and poor? Should the pursuit of freer trade take into account concerns about labour standards (and parallel concerns about environmental protection) – and if so, how?

Concerns along these lines have become increasingly prevalent in debates over trade policy, leading in some countries to reluctance to negotiate new free trade deals or demands to renegotiate existing treaties. For its part, the EU has moved towards more assertively applying the provisions relating to trade, labour and the environment in its free trade agreements. 

The EU’s enforcement strategy has recently had its first concrete outcome, in the form of the first panel ruling concerning labour standards under an EU free trade agreement. This concerned freedom of association under the EU/South Korea free trade deal. Note that the EU is recently more active in enforcing other aspects of its bilateral FTAs too: see the recent panel ruling in a dispute brought by the EU against Ukraine (regarding a Ukrainian export ban on wood). Dispute settlement proceedings against South Africa (regarding poultry) and Algeria (regarding import restrictions) are also underway.

This blog post summarises the relevant law in the free trade agreement and its interpretation by the panel, then comments on the ruling in the context of the broader debate about the relationship between trade and labour standards. Finally, I discuss how the ruling might be relevant by analogy to disputes about trade and the environment, to the controversial new EU/China investment agreement and to EU/UK disputes under the new post-Brexit trade deal (see further my summary of that deal and discussion of dispute settlement and human rights, as well as Markus Gehring’s analysis of the environmental rules in the deal).

 

The trade and sustainable development provisions of the free trade agreement

The term ‘level playing field’ is commonly used to refer to these issues (and some other issues) in the recent UK/EU treaty, but the phrase ‘trade and sustainable development’ is used in the EU/S Korea treaty (and more commonly by trade lawyers generally). The EU/S Korea rules are similar to those in a number of other recent FTAs with the EU, and so the panel report may well be relevant by analogy to potential disputes between the EU and (some) other non-EU countries. They are also broadly similar to the recently agreed EU/China investment agreement (not yet in force). However, as discussed further below, the ‘Brexit deal’ provisions go further.

Also, it should be noted that ‘trade and labour’ rules are not unique to agreements with the EU. For instance, free trade agreements with the US contain some provisions on the issue. Indeed, as also discussed below, the panel report distinguishes itself from the ruling in a case between the US and Guatemala.

Chapter 13 of the FTA, the ‘trade and sustainable development’ Chapter, first defines its ‘context and objectives’: the parties ‘reaffirm their commitments to promoting the development of international trade in such a way as to contribute to the objective of sustainable development’ (Article 13.1.1). They ‘recognise that economic development, social development and environmental protection are interdependent and mutually reinforcing components of sustainable development’ (Article 13.1.2). Also, they ‘recognise that it is not their intention in this Chapter to harmonise the labour or environment standards of the Parties, but to strengthen their trade relations and cooperation in ways that promote sustainable development’.

The scope of the Chapter is then defined (Article 13.2.1):

Except as otherwise provided in this Chapter, this Chapter applies to measures adopted or maintained by the Parties affecting trade-related aspects of labour and environmental issues in the context of Articles 13.1.1 and 13.1.2.

Having linked trade with sustainable development, Article 13.2.2 then pushes back:

The Parties stress that environmental and labour standards should not be used for protectionist trade purposes. The Parties note that their comparative advantage should in no way be called into question.

The mixed message continues in Article 13.3, titled ‘right to regulate’, which first refers to ‘the right of each Party to establish its own levels of environmental and labour protection, and to adopt or modify accordingly its relevant laws and policies’, but then qualifies that immediately by stating that ‘each Party shall seek to ensure that those laws and policies provide for and encourage high levels of environmental and labour protection, consistent with the internationally recognised standards or agreements referred to in Articles 13.4 and 13.5, and shall strive to continue to improve those laws and policies.’

What are those international standards exactly? Article 13.4 defines the international labour standards:

1. The Parties recognise the value of international cooperation and agreements on employment and labour affairs as a response of the international community to economic, employment and social challenges and opportunities resulting from globalisation. They commit to consulting and cooperating as appropriate on trade-related labour and employment issues of mutual interest. 

2. The Parties reaffirm the commitment, under the 2006 Ministerial Declaration of the UN Economic and Social Council on Full Employment and Decent Work, to recognising full and productive employment and decent work for all as a key element of sustainable development for all countries and as a priority objective of international cooperation and to promoting the development of international trade in a way that is conducive to full and productive employment and decent work for all, including men, women and young people.

3. The Parties, in accordance with the obligations deriving from membership of the ILO and the ILO Declaration on Fundamental Principles and Rights at Work and its Follow-up, adopted by the International Labour Conference at its 86th Session in 1998, commit to respecting, promoting and realising, in their laws and practices, the principles concerning the fundamental rights, namely:

(a) freedom of association and the effective recognition of the right to collective bargaining;

(b) the elimination of all forms of forced or compulsory labour;

(c) the effective abolition of child labour; and

(d) the elimination of discrimination in respect of employment and occupation.

The Parties reaffirm the commitment to effectively implementing the ILO Conventions that Korea and the Member States of the European Union have ratified respectively. The Parties will make continued and sustained efforts towards ratifying the fundamental ILO Conventions as well as the other Conventions that are classified as ‘up-to-date’ by the ILO.

Article 13.5 then defines international environmental standards. I’ve discussed the application of this ruling to them by analogy separately below.

Article 13.6 is a general statement about the links between trade and sustainable development. Article 13.7 then sets out a rule about ‘upholding levels of protection’, ie reducing standards or failing to enforce domestic labour law.

Skipping over a number of general provisions, the Chapter ends with rules on dispute settlement. Article 13.14 first calls for consultation between the parties on a ‘matter…arising under’ the Chapter. If these do not lead to a settlement within 90 days, a party can call for a panel of experts to be set up (Article 13.15). The panel is to make recommendations, and the parties ‘shall make their best efforts to accommodate advice or recommendations of the Panel of Experts on the implementation of this Chapter.’ This replaces the main dispute settlement system of the FTA, which is switched off for any ‘matter arising under’ this chapter (Article 13.16).

The panel report

The EU’s argument was based on two separate parts of Article 13.4.3 of the FTA, which was set out in full above. First, South Korea’s domestic labour law had not fully complied with ILO obligations as regards freedom of association. Second, South Korea had not made sufficient efforts towards ratifying core ILO treaties. 

Rules of interpretation

The report starts out by asserting that the level playing field provisions must be interpreted in accordance with the normal rules of interpretation of international law, in Articles 31 and 32 of the Vienna Convention of the Law of Treaties (VCLT). This followed from the obligation in the FTA for dispute settlement arbitrators to apply those rules; and the panel of experts was acting in lieu of arbitration.

Jurisdiction

Next, the panel turned to its jurisdiction to hear the case. Jurisdiction can be a dry technical issue, but here the dispute went to the core of the trade/labour nexus.  South Korea argued that the dispute was not ‘a matter arising under’ the Chapter, so could not be subject to dispute settlement at all, because Article 13.2.1 limited the Chapter to measures by a party ‘affecting trade-related aspects of labour and environmental issues’ (emphasis added). There was no direct impact on trade here, therefore no matter could arise under the Chapter.

If this argument had been accepted, it would have ended not only this particular dispute but also (if the ruling had been taken as a precedent) potentially many other disputes under this and other EU FTAs (as well as the EU/China investment treaty).  However, the panel did not accept it. It pointed instead to the words at the start of Article 13.2.1: ‘Except as otherwise provided in this Chapter…’, which indicated that there were exceptions to the rule that the Chapter only related to trade-related aspects. Article 13.4.3 was one of those exceptions. This was confirmed by the broad references to ILO obligations, the ‘fundamental rights’ aspects of those obligations, the reference to the abolition of ‘all’ compulsory labour, and the impossibility of ratifying ILO Conventions only as regards a limited category of workers. It was further confirmed by a contrario comparison with Article 13.4.1 and 13.4.2, which refer to trade (as to Articles 13.7 to 13.9), and by interpreting the scope of the Chapter in light of the broad context and objectives set out in Article 13.1 and the preamble to the FTA.

South Korea also argued that the EU aimed to harmonise the labour law of the parties, in breach of Article 13.2.2. The panel did not accept this either. Harmonisation meant ‘alignment of actual standards such as minimum rates of pay, maximum hours of work, or access to job security procedures’ as distinct from ‘fundamental principles and rights and core labour standards’, which ‘do not require harmonisation of domestic labour laws or outcomes’. The proof of this was that ‘many of the member States which have ratified the relevant Conventions both comply with their international obligations and maintain disparate systems of industrial relations, with very different substantive outcomes in terms of levels of economic development’. The panel also noted that the domestic right to regulate in Article 13.3 was subject to the obligation to uphold core standards.

Likewise, the panel rejected the argument that the EU aimed at protectionism, referring to ILO research that asserts no link between competitiveness and raising labour standards. With respect, a better argument here might be that the EU was not arguing for a protectionist measure (ie trade retaliation), if only because of the limits on remedies set out in the FTA itself. If there is no link between lower labour standards and trade, why does this Chapter often make that link in the first place? The panel’s interpretation is a hostage to fortune because it might make it harder for the EU to bring a claim in a different case relating to reduction or non-enforcement of labour standards, where it would have to show an effect on trade or investment to win the case.

On that point, next, the panel rejected any comparison with the ruling in the US/Guatemala dispute, because the rule in the FTA in question was a requirement that a party ‘shall not fail to effectively enforce its labour laws, through a sustained or recurring course of action or inaction, in a manner affecting trade between the Parties…’. While this was nearly identical to Article 13.7.1 of the EU/S Korea FTA (‘(a) Party shall not fail to effectively enforce its environmental and labour laws, through a sustained or recurring course of action or inaction, in a manner affecting trade or investment between the Parties’ – though note the extension to include environmental law, and an effect on investment), the EU was not alleging a breach of Article 13.7, ie a failure to enforce South Korea’s labour law. It was  instead alleging a breach of the separate obligation for that domestic labour law to meet minimum standards. More broadly, the context of the two treaties is different: the US/Central America/Dominican Republic treaty ‘does not have the same contextual setting of sustainable development as the EU-Korea FTA, nor does it refer to the range of multilateral and international agreements and declarations which the Parties have included in the EU-Korea FTA’.

Substance: domestic labour law

The panel then turned to the EU’s arguments about South Korean labour law, which were fourfold: a narrow definition of ‘workers’ who can join trade unions (excluding self-employed or dismissed or unemployed workers); the definition of ‘trade union’ as excluding bodies who admit persons excluded from the category of ‘worker’ as members; the requirement that only members can be trade union officials; and the discretionary registration of trade unions.

It started with looking at the different elements of Article 13.4.3. As regards the requirement to act ‘in accordance with the obligations deriving from membership of the ILO’, the panel found that it included the obligation to ensure freedom of association, even where (like South Korea) a country had not signed up to specific treaties on that issue. Moreover, the rulings of the ILO’s Committee on Freedom of Association could be taken into account.

As for ‘the ILO Declaration on Fundamental Principles and Rights at Work and its Follow-up’, the panel decided that the EU was not claiming that it was legally binding as such. What was legally binding between the parties was Article 13.4.3, taken as a whole.

Next, the panel considered the legal strength of the term ‘commit to’. Here the panel rejected South Korea’s argument that this wording was purely aspirational, ruling instead that ‘this represents a legally binding obligation of commitment to respecting, promoting and realising the obligations arising from membership of the ILO and the 1998 ILO Declaration in relation to the principles concerning the fundamental rights’.

It then turned to those specific terms. ‘Respecting’ meant a ‘negative obligation not to injure, harm, insult, interfere with or interrupt freedom of association’. ‘Promoting’ meant a ‘positive obligation on States, which in human rights statements on the content of the freedom of association means that States should ensure third parties do not disrupt workers engaging in their right to freedom of association’. Also, ‘States should create a ‘climate’ in which the civil rights of workers and employers allow them to freely exercise their rights to freedom of association’. As for ‘realising’, this meant ‘a binding requirement involving a commitment to realising the principles concerning the fundamental right of freedom of association’ as distinct from ‘a binding requirement that a Party comply with the terms of Conventions’ as such – which was the subject of a separate complaint, considered below.

Finally, ‘the principles concerning the fundamental rights’ did not mean that there was no legally binding obligation, and the panel was unconvinced by the South Korean argument that these principles were not sufficiently clear.  It did, however, hint that the freedom of association principles were clearer than the others referred to (forced labour, child labour and discrimination), raising the prospect that a case concerning those principles might face an extra hurdle to be successful.

Applying these principles to the EU’s specific complaints, first of all South Korea had wrongly excluded self-employed or dismissed or unemployed workers from joining trade unions. On the first point it noted that this issue arose under some EU Member States’ law too – noting that this might be an issue for discussion between the parties going forward. On dismissed workers, it noted in particular that there were insufficient safeguards against being dismissed for trade union-related activity.

Next, the panel concluded that South Korea had wrongly defined ‘trade unions’ as excluding bodies who admit persons excluded from the category of ‘worker’ as members, noting in particular that some trade unions had been deregistered because their members had been dismissed. Needless to say, this gives employers considerable power over not only individual employees but also entire trade unions by threatening dismissal of a union member. It also ruled against the national law requirement that only union members can be trade union officials, on the basis that ti was up to union members to choose who to represent them.

On the other hand, the panel ruled against the EU complaint regarding the discretionary registration of trade unions, holding that the evidence was contradictory and it was not sufficiently certain that the complaint was well-founded.

Substance: ratification of ILO Conventions

As a reminder, treaty provides that South Korea ‘will make continued and sustained efforts towards ratifying the fundamental ILO Conventions as well as the other Conventions that are classified as “up-to-date” by the ILO’. The EU argument related only to the ‘fundamental’ Conventions.

The panel started out by noting that of the eight ‘fundamental’ ILO Conventions, South Korea had yet to ratify four: two on forced labour and two on trade unions. The first issue here was the legal strength of the word ‘will’: the panel rejected South Korea’s argument that it was not really binding, holding that it ‘establishes a binding legal obligation’.

But a legal obligation to do what exactly? Here the panel rejected both South Korea’s argument that the status quo was sufficient, and the EU’s argument that progress towards ratification must continue ‘without interruption’. There was no concrete requirement or target date, and the parties had ‘leeway’ in achieving the objectives. This was an obligation of effort, not result.

Was there sufficient effort then? The panel ruled that it was sufficient that the South Korean government had tabled bills before Parliament in 2019 to ratify three of the treaties concerned. As for the other treaty, concerning prison labour, the panel accepted South Korea’s argument that changes to penal law take time. (One might note that they take very little time when a State responds to a terrorist bomb or other outrage). Overall, while expressing mild disappointment, the panel did not think that South Korea had breached its obligation to make effort towards ratifying the Conventions.

What happens when and if these treaties are ratified? That’s a hypothetical issue, and the panel was not called upon to address it. But it should be recalled that Article 13.4.3 also provides for a ‘commitment to effectively implementing the ILO Conventions that Korea and the Member States of the European Union have ratified respectively’. This would apply already, of course, to ILO Conventions which both sides have ratified. Logically much of the panel’s analysis would apply by analogy to this provision: it falls within its jurisdiction; there is no requirement to show a link to trade or investment; and the word ‘commitment’ entails a legally binding obligation. But here the wording is stronger than the obligation to make ‘efforts towards ratifying’ treaties: ‘effectively implementing’ them arguably suggests rather an obligation of result, going beyond halting and partial ‘efforts’ to do so.   

 

Comments

The EU has won some significant victories here, as regards: jurisdiction; the legal effect of some vague quasi-soft law terms; the absence of a requirement for a trade or investment impact; the references to some ILO Conventions; and the use of ILO ‘soft law’. All of this sends a signal to other non-EU countries, should the EU seek to invoke the relevant provisions (where they exist) in other FTAs or the EU/China investment treaty. Of course, the obligations also apply to the EU – as the panel points out at several places – although labour unions and environmental groups would likely be happy to see the EU held to account as well.

The EU has been successful also on some key points of criticism of domestic labour law. The panel’s close attention to the effect of labour law rules in practice – ie as a means to decertify trade unions simply by firing a member – is significant. On the point where the EU failed to table enough evidence to convince the panel, that is a pointer for how such disputes might be litigated in future.

The EU will likely be disappointed by the panel’s approach to ILO Conventions, where it held that they created a legal obligation but applied a relatively low threshold to assessing South Korea’s compliance with the obligation to move towards ratifying them. As noted above, some aspects of its reasoning (as regards the prison labour Convention, and the ‘disguised protectionism’ point) are particularly unconvincing, with great respect. This sends a converse message to non-EU countries: that a delay of nearly a decade in ratifying such Conventions, including extra tardiness in ratifying one important Convention, is acceptable. However, it should be noted that as discussed above, the obligations to implement ILO Conventions after ratification, while not discussed by this panel report, are arguably stronger.

Of course, the EU’s partial success in its action is inevitably limited by the lack of any further remedies to enforce the panel ruling. It might be possible that the process has some effect on domestic political opinion in the other party, perhaps helping to persuade the government to move faster on the relevant issues. However, considerations like these are only relevant where there is a form of democracy in the other party – so they are hardly relevant in the context of the EU/China investment agreement.  

The context of the panel ruling includes the gradual development of the EU’s own trade policy. A revision of internal EU law on trade remedies (which does not apply to investment treaties) is about to be formally adopted, and will be accompanied by a statement from the Commission, including the following commitment to enforcement of sustainable development provisions in the EU’s FTAs:

In deploying the enhanced enforcement system [regarding alleged breaches of trade agreements], the Commission will pay equal attention to alleged breaches of the trade and sustainable development provisions of EU trade agreements as to alleged breaches of market access systems. The processing of alleged breaches of trade and sustainable provisions will be fully integrated into the system. The Commission will prioritise those cases which are particularly serious in terms of their effect on workers or the environment in a trade context, which have systemic importance and which are legally sound.  

In the same context, the panel ruling is comparable to the 2017 CJEU judgment on the EU’s legal competence to agree the EU/Singapore free trade agreement, which decided (at paras 139 to 167) that the ‘sustainable development’ provisions fell within the scope of the EU’s common commercial (ie trade) policy. Having said that, it is striking that the CJEU took a different view from the panel as to whether lower labour standards might have an effect on trade, ruling that the sustainable development provisions:

are such as to have direct and immediate effects on trade between the European Union and the Republic of Singapore since they reduce the risk of major disparities between the costs of producing goods and supplying services in the European Union, on the one hand, and Singapore, on the other, and thus contribute to the participation of EU entrepreneurs and entrepreneurs of the Republic of Singapore in free trade on an equal footing (para 159).

There’s a context beyond the EU as well: while the new US President will not be tweeting angrily in the middle of the night about trade issues, the Biden administration is nevertheless lukewarm about further trade liberalisation. Whether this means ruling out trade deals entirely, or insisting on more account being taken of labour and environmental standards in such deals, remains to be seen.  

More broadly, concern in wealthier countries about opening up (or retaining) free trade without more enforceable labour and environmental standards may have reached a tipping point. One might draw comparisons with the EU’s own moves to adopt more labour and environmental law in the context of completing the internal market. Free trade’s hardcore advocates have long resisted making a strong link between trade and labour or environmental standards. They may now face a choice not necessarily between socialism or barbarism, but at least between legalism or nativism.

 

Application to environmental law

As noted above, some parts of the panel ruling are relevant to environmental disputes by analogy – in particular to the equivalent provisions on multilateral environmental treaties in Article 13.5:

2. The Parties reaffirm their commitments to the effective implementation in their laws and practices of the multilateral environmental agreements to which they are party.

3. The Parties reaffirm their commitment to reaching the ultimate objective of the United Nations Framework Convention on Climate Change and its Kyoto Protocol. They commit to cooperating on the development of the future international climate change framework in accordance with the Bali Action Plan.

First of all, interpretation in accordance with the VCLT is equally relevant to environmental issues. The panel’s analysis of jurisdiction applies also to environmental disputes by analogy:  Articles 13.5.2 and 13.5.3 are equally exceptions to the rule that the Chapter only covers trade-related aspects of the environment, given that there is no reference to trade only here.

As with the labour provisions, one can interpret the scope of those rules a contrario by comparison with Article 13.5.1 (which does mention trade) and Articles 13.7 to 13.9, and in light of the broad context of Article 13.1 and the preamble. The indivisibility of ILO Conventions applies equally to environmental treaties. The limited scope of the ban on harmonisation of law, the distinction between the right to regulate and the obligation to uphold core standards, and the absence of a requirement to show an effect on trade applies equally to the clause on multilateral environmental treaties.

By analogy with the panel ruling, the words ‘commit’ and ‘commitment’ as regards environmental treaties – appearing three times here – denote a legally binding obligation. A commitment to cooperation is arguably too vague to define in concrete terms; but on the other hand, a ‘commitment to reaching the ultimate objective’ of a treaty is a stronger obligation than ‘continued and sustained efforts towards ratifying’ the ILO Conventions at issue in part of the labour dispute.

The strongest obligation here may be the obligation ‘to the effective implementation in their laws and practices of the multilateral environmental agreements to which they are party’. This closely parallels the commitment in the labour provisions ‘to effectively implementing the ILO Conventions that Korea and the Member States of the European Union have ratified respectively’ – discussed further above.

Just as the panel report may be relevant by analogy to the labour provisions in other EU FTAs and the EU/China investment treaty, this extension of its reasoning could be relevant to the environmental provisions of those FTAs and the EU/China treaty too.

Application to the EU/China investment treaty

Comparing the EU/S Korea FTA with the EU/China investment treaty, the latter (understandably) refers only to investment aspects throughout, rather than trade also. However, it does not limit its scope in the same way as the EU/S Korea treaty, so South Korea’s jurisdictional objections (which were unsuccessful anyway) would not be applicable. The two treaties have a similar clause on their context, and comparable provisions on environmental treaties.

As regards labour standards, the non-regression and non-enforcement clauses are similar to the EU/S Korea treaty. The provision on ILO standards and domestic law, and ratification of ILO Conventions, provides:

1. Each Party, in accordance with its obligations assumed as a member of the International Labor Organization (“ILO”), and its commitments under the ILO Declaration on Fundamental Principles and Rights at Work and its Follow-up, shall respect, promote and realize, in good faith and in accordance with the ILO Constitution, the principles concerning the fundamental rights which are the subject of the fundamental ILO Conventions.

2. Each Party is, in accordance with the commitments of the members of the ILO and the 2019 ILO Centenary Declaration for the Future of Work, committed to effectively implement the ILO Conventions it has ratified and work towards the ratification of the ILO fundamental Conventions. In particular, in this regard, each Party shall make continued and sustained efforts on its own initiative to pursue ratification of the fundamental ILO Conventions No 29 and 105, if it has not yet ratified them. The Parties will also consider the ratification of the other Conventions that are classified as "up to date" by the ILO.

It is notable that this wording leaves out the list of fundamental rights in question, thereby omitting to mention forced labour explicitly. However, it is nevertheless covered by the general reference to ILO principles, in light of the panel interpretation.

The wording is basically similar to the clause in the EU/S Korea treaty which the panel interpreted, and so should logically be interpreted the same way, particularly in light of the use of the stronger word ‘shall’ at two points. Remember that the panel interpreted the word ‘committed’ (here referring to effective application of ILO Conventions once ratified) as legally binding.

As with the EU/S Korea FTA, the weak message on ratification of ILO Conventions (in this case, two forced labour Conventions) is arguably compensated for by the stronger wording on the domestic implementation of ILO principles. But this is subject to the important caveat above – that the recent panel ruling suggests that freedom of association principles might be easier to identify than the other ILO principles being referred to. The particular risk here is that the crucial issue of forced labour could not be effectively addressed. Whether this is sufficient will likely be subject to much debate in the near future. 

Finally, the dispute settlement system is essentially the same as for the EU/S Korea FTA, although the parties merely ‘discuss measures’ following any panel ruling.

Application to the EU/UK treaty

Comparing the EU/S Korea FTA with the EU/UK deal (chapter 8 of the ‘level playing field’ rules), the list of international measures includes some later measures in the latter treaty, but the references to integrating sustainable development into the EU/UK relationship are shorter. Conversely, the EU/UK treaty makes more references to transparency. The wording relating to ILO Conventions is only slightly different, bringing together the rules on promoting and effectively implementing such Conventions: ‘each Party commits to respecting, promoting and effectively implementing the internationally recognised core labour standards, as defined in the fundamental ILO Conventions’.

But there are additional commitments to: implementing the parts of the Council of Europe Social Charter that each party has signed up to; promoting the ILO Decent Work Agenda; protecting the social dialogue; and cooperating in multilateral fora on ‘trade-related’ labour issues.  There is a much longer list of environmental obligations as compared to the EU/S Korea FTA.  

Crucially, there is no general clause limiting the scope to ‘trade-related’ matters; such wording appears only in a handful of provisions of chapter 8. There is no rule against harmonisation or protectionism either.  So the various jurisdictional objections raised by South Korea could not so easily be made; and in any event, this panel report’s rejection of such arguments might well serve as a precedent. The panel’s findings that terms like ‘will’ and ‘commitment’ contain are legally stronger than one might think could also be relevant by analogy.

However, one similarity between the UK/EU and UK/S Korea treaties is crucial: the relevant provisions are both subject to a relatively limited form of dispute settlement, consisting of consultation followed by expert panels. No trade remedies can result, even if the panel finds a breach of the treaty. On the weak legal effect of a panel report, the EU/UK treaty is even blunter than the ‘best efforts’ clause in the EU/Korea treaty: ‘the Parties share the understanding that if the Panel makes recommendations in its report, the responding Party does not need to follow these recommendations in ensuring conformity with the Agreement.’

Conversely, though, the references to upholding domestic legal standards – ie the cases similar to US/Guatemala, not EU/S Korea – are removed from the ‘fluffy’ sustainable development chapter, being placed instead in separate chapters in the UK/EU treaty, where trade retaliation can apply.  It is worth comparing the substantive test in full. First of all, the EU/UK treaty provides:

A Party shall not weaken or reduce, in a manner affecting trade or investment between the Parties, its labour and social levels of protection below the levels in place at the end of the transition period, including by failing to effectively enforce its law and standards.

(There’s an identical provision for environmental law). The EU/S Korea treaty provides:

1. A Party shall not fail to effectively enforce its environmental and labour laws, through a sustained or recurring course of action or inaction, in a manner affecting trade or investment between the Parties.

2. A Party shall not weaken or reduce the environmental or labour protections afforded in its laws to encourage trade or investment, by waiving or otherwise derogating from, or offering to waive or otherwise derogate from, its laws, regulations or standards, in a manner affecting trade or investment between the Parties.

Note that there are two rules in the EU/S Korea treaty – non-enforcement and non-regression – which are in effect merged in the EU/UK treaty. In the EU/S Korea treaty, non-enforcement is subject to two different thresholds: not only ‘in a manner affecting trade or investment’ but also ‘sustained or recurring course of action or inaction’. As for non-regression, it is also subject to the ‘manner affecting trade or investment’ test, but also a requirement that the reduction in standards must take the form of a waiver of a derogation of its laws ‘to encourage trade or investment’.

By comparison, while the EU/UK treaty also contains a threshold of ‘in a manner affecting trade or investment between the Parties’, it does not contain the requirement that any non-enforcement must take the form of a ‘sustained or recurring course of action or inaction’. Nor does it require that a reduction in standards take the form of a waiver of a derogation of its laws ‘to encourage trade or investment’. Any reduction of standards will do, not just a waiver or derogation of them, although unlike under the EU/S Korea treaty, the time period to judge the reduction of standards is fixed at a particular date: the end of the transition period. On the face of it, there is no scope for a dynamic interpretation, ie a reduction of standards in 2025 from a higher level which was legislated in 2022 would not fall within the scope of the EU/UK clause, unless that drop in standards went so far as to drop also below the level at the end of 2020.

However, a development like that might fall within the scope of the ‘rebalancing’ clause in the EU/UK treaty, which concerns future developments, and is also subject to potential trade retaliation.  Here there is a different threshold: the rule applies where ‘material impacts on trade or investment between the Parties are arising as a result of significant divergences between the Parties’ as regards labour, environment or subsidy laws.

Finally, just for fun: it’s a moot point now, but can we make any analogies between the EU/S Korea panel’s interpretation of the obligation to move toward ratification of the ILO treaties and the provision in the withdrawal agreement about negotiating a future relationship treaty? Here’s that text:

The Union and the United Kingdom shall use their best endeavours, in good faith and in full respect of their respective legal orders, to take the necessary steps to negotiate expeditiously the agreements governing their future relationship referred to in the Political Declaration of 17 October 2019 and to conduct the relevant procedures for the ratification or conclusion of those agreements, with a view to ensuring that those agreements apply, to the extent possible, as from the end of the transition period.

The wording is far from identical. But in general, remember that the panel report found an obligation of effort, not result, which was moreover not very strict. So the panel report is far from helpful to those who claimed that the EU was in breach of the clause for being ‘mean’ to the UK by not agreeing with the UK’s negotiation position. (Nor would it help anyone making an argument the other way around).  And suffice it to say that while the panel made extensive reference to primary and secondary literature, it did not find that any legal obligations derived from power point slides or tweets from EU officials.

Barnard & Peers: chapter 9; chapter 24; chapter 27; chapter 20; chapter 22