Sustainability provisions in RTAs: Options for multilateralisation

Sustainability provisions in RTAs: Options for multilateralisation

Sustainable development is increasingly becoming mainstream in trade agreements. The past few years have seen a significant upsurge in the inclusion of sustainable development provisions (SDPs) in regional trade agreements (RTAs), particularly in deep-integration RTAs – i.e. those seeking commitments beyond WTO obligations. There has been interest in using RTAs as building blocks towards the multilateralisation of SDPs.

Trends in sustainability provisions across RTAs

A plethora of RTAs we reviewed, concluded by Canada, Australia, Canada, Chile, the European Free Trade Association (EFTA), the EU, Japan and the US, have included SDPs. However, the levels of incorporation of SDPs differ, with some RTAs containing more comprehensive measures than others. Some RTAs just pay homage to sustainable development with no real commitments undertaken.

On balance, incorporation tools have over time undergone a substantive transformation away from mere dialogue provisions towards comprehensive SDPs in preambles, general exceptions clauses, dedicated chapters, incorporation in other chapters, side letters, and side agreements.

Despite this trend of incorporating comprehensive provisions into deep-integration RTAs, there is still no consensus to create binding provisions subject to dispute settlement in RTAs, with the partial exception of the Trans-Pacific Partnership (TPP). Of course, there are some exceptions that always create binding obligations, notably in US RTAs since the North American Free Trade Agreement (NAFTA). Nonetheless, the absence of binding commitments subject to dispute settlement may indicate that most states prefer a soft law approach to sustainable development issues. These soft law provisions take the form of cooperation mechanisms, consultation requirements, enforcement mechanisms, and reaffirmation of international standards.

Some RTAs have gone beyond soft law provisions to incorporate investor-state dispute settlement (ISDS) which creates another platform to resolve disputes, notwithstanding the controversy surrounding them. Most prominently, a new Investment Court System for dispute settlements is being established under the Comprehensive Economic and Trade Agreement (CETA), partly with a view to enhance the enforceability of SDPs.

Another trend concerns the provisions addressed in RTAs, where provisions broadly address similar social and environmental issues. The main social issues addressed include labour, transparency, and political participation. The main environmental issues include protection of the marine environment, ozone layer, and fisheries. The EU goes a step further to include a specific provision on human rights; but this still remains a challenge for other countries, most of which shy away from explicit human rights provisions. As a result, human rights provisions are only incorporated under other chapters, such as the labour chapter.

Furthermore, the standards in relation to labour and the environment are similar across RTAs. RTAs refer to similar international instruments such as the International Labour Organization (ILO) Declaration and the Montreal Protocol.

Overall, the incorporation of sustainable development into RTAs is far from complete, with many obstacles remaining. Against this backdrop, what are the prospects for multilateralising RTA SDPs?

Multilateralisation of sustainability provisions

Some SDPs are amenable to a multilateralisation process. The degree of similarity in the channel of incorporation, issues addressed (social and environmental), and enforcement mechanisms among some RTAs, notably those concluded by Canada, the EU, and the US attests to this.

While a critical mass of developed countries has adopted and continues to adopt SDPs, there has been unwillingness by developing countries to include SDPs in RTAs, though there are exceptions such as Chile. Many developing countries are wary of taking on SDP commitments that could impose rigorous obligations on them, or obligations they are not prepared to accept. Given the broader challenges with negotiating multilateral deals in the WTO, this does not bode well for multilateralising SDPs.

Despite these challenges, the quest for multilateralisation continues to grow. Possible avenues include:

  • the extension of existing RTAs to willing non-parties to the overall package, thus widening the circle;
  • regional consolidation, creating one larger RTA by combining two or more existing RTAs, for example the Tripartite Free Trade Agreement (TFTA) in Africa;
  • a convergence of key SDPs through plurilateral agreements negotiated amongst a critical mass of countries in the WTO; and
  • the WTO gradually adopting new substantive provisions or negotiating a new agreement like the Trade Facilitation Agreement (TFA) and ratifying it progressively.

In considering all these options, the WTO’s work programme on trade and sustainable development could be used as a basis to promote the extension of deep RTAs containing sustainability provisions.

Looking ahead

While important building blocks have been erected at the regional level, the multilateralisation of SDPs in RTAs is critical. It would ensure, among other things, uniform application of the provisions, which would facilitate the advancement of the UN Sustainable Development Goals. Work already done at the RTA level gives us ground for cautious optimism. With political will, more RTAs could be persuaded to join the bandwagon leading to greater acceptance and eventual multilateralisation of sustainable development provisions. 

This article is derived from the paper Sustainability Provisions in Regional Trade Agreements: Can they be Multilateralised?

Peter Draper, Nkululeko Khumalo, and Faith Tigere are respectively Managing Director, Senior Associate, and Researcher, Tutwa Consulting Group.

In March 2017, ICTSD and the Inter-American Development Bank (IDB) organised a dialogue on sustainability provisions as part of the RTA Exchange project.

Towards the next frontier: Industry 4.0 and e-commerce

Towards the next frontier: Industry 4.0 and e-commerce

Conversations about the fourth industrial revolution often revolve around the negative impacts thereof and how woefully unprepared we are. This debate was brought into sharper focus after Donald Trumps’ victory as the media and academics scrambled to find out why people voted for a man running on a mercantilist platform. As it turns out a lot of people were ‘left behind’, or at least felt that way, in an economy that had marched forward; the private sector had leveraged free trade and automation with government having almost no plan to assists or redeploy those affected by the rapid changes. Now that most people are nodding in agreement, the narrative is changing; governments should be better prepared for these disruptive forces, but what does this mean?

The impact of industry 4.0

Advances in the fields of nanotechnology, biotechnology and material sciences are staggering! Ever heard of Graphene or Navacim? Development of these technologies is in itself a huge leap forward, but we’ll only really know the full extent of their impact once they are absorbed into other industries. This requires scale and commercialization, which at the moment is just out of reach. On the other hand, rapid advances – especially in the biotech industry – are forcing some developers to consider the moral implications of their breakthroughs. However, advances in other fields; like robotics, energy storage, autonomous vehicles, the internet of systems and 3D printing; are already available and some have already entered the market.

As the potential benefits of employing these technologies could far outweigh the risks, staggered labour market shocks can be expected when they are absorbed. In some occupations, clerical work for example, human operators are a big liability, exposing a system to errors, fraud and misunderstandings; things that can be eliminated in a completely automated system. Companies who embrace the advances are likely to be more competitive than those that don’t. It would also mean that the ultimate survivors are those companies that don’t rely on human capital.

We could just as easily see the ‘ironies of automation’ where the systems are less efficient than initially thought but would only be realised after long term operation. At this point it’s hard to tell, as there is a surprising amount of social elements that need to be explored when technologies are introduced alongside human counterparts, but we’re certain at least that more tasks will be automated.

In time the net effect of these emerging technological break throughs will likely translate into large scale labour market disruptions but the extent will depend on the scalability, economic viability, absorption rate and whether or not there’s any room for symbiosis with current occupations. But as more parts of manufacturing value chains are automated, the demand for unskilled and semi-skilled labour will decrease. If left to market forces industry 4.0 will further increase inequality as highly skilled and educated innovators are rewarded for their efforts, alongside those individuals with the capital to invest in risky start-up ventures and large scale research and development projects.

Most advances in technology make our jobs easier; we don’t have to dig individual holes for each seed we plant, we plough and seed an entire field in a matter of hours using mechanical muscle and possibly satellite guided farming equipment. This leaves us with more free time, presumably to develop other skills and satisfy our needs, but at some point certain jobs become so easy that we really don’t have anything to do anymore. Technological advances have always caused disruptions like this but it’s the first time that we’ve seen this many industries and occupations become vulnerable in such a short time span. Think of it as a massive productivity shock which can make humans the least productive part in most manufacturing chains.

Folklore suggests that humanity ultimately loses this battle and is left behind with our old means of production while the machines march on. But people are uniquely equipped to adapt, and as opportunities disappear from one segment of the economy, people will migrate to pursue opportunities in another. We’re already seeing such a migration.

The opportunities of digital trade

Digitalisation is a ‘cross-border trade’ game changer, and while there are significant threats and disruptions, massive opportunities are created. According to McKinsey Global Institute, the value of data flows has overtaken the value of global trade in physical goods. Cross-border data flows transmit valuable streams of information and ideas in their own right, and also enable the movement of goods, services, finance, and people such that virtually every type of cross-border transaction now has a digital component.

Approximately 12{fdf3cafe0d26d25ff546352608293cec7d1360ce65c0adf923ba6cf47b1798e1} of international trade in consumer goods is now conducted via e-commerce. The total global flows of goods, services, finance, people, and data have raised world GDP by at least 10{fdf3cafe0d26d25ff546352608293cec7d1360ce65c0adf923ba6cf47b1798e1} in the past decade, adding US$7.8 trillion in 2014 alone, of which data flows accounted for $2.8 trillion.

As such, harnessing the power of digitalisation should be a top priority for policy makers and business everywhere particularly developing countries with massive economic inequalities. Digital trade presents an opportunity for shared global economic growth and allows many start-up companies to become global players even while they are still micro-enterprises.

What’s a government to do?

It’s worth noting that most online service providers, like Airbnb and Uber, initially operated in a largely unregulated space giving them the opportunity to quickly gain market share over traditional, more strictly regulated, service providers. Frustrating as it may be, legislators need to continue regulating markets and technologies as they are introduced to the economy rather than trying to primitively introduce regulation to protect traditional markets which has a smothering effect on industry innovation. Government efforts should be focused on identifying crosscutting issues in industry 4.0 and introducing legislation that will create an enabling environment to further increase competitiveness.

This entails, inter alia, more investment in education (especially in the STEM – Science, technology, engineering and mathematics – disciplines) in order to promote digital literacy and spur innovation; revamping tax policies to reduce or eliminate customs duties on ICT infrastructure in order to reduce internet access costs; and ensure affordable data charges with a view to enhance access to the internet and creation of new platforms and/or participation in the world’s biggest digital platforms such as Alibaba, Amazon, and eBay, amongst others, which are enabling millions of SMEs around the world to seize cross-border opportunities.

There certainly will be losers. The challenge for policy makers is to ensure that more winners than losers are made. Without doubt, the well-connected and digitally literate will swell the ranks of winners.

Photo credit: MattHurst via /  CC BY-SA
Plugging Africa Into E-Commerce

Plugging Africa Into E-Commerce

In the final quarter of 2016 South Africa participated in two critical global economic governance summits as the lone continental representative: the 11th G20 summit hosted by China and the 8th BRICS summit hosted by India. Both hosts placed e-commerce on the agenda, signalling a desire to engage on the topic. Meanwhile, on the multilateral front the WTO is exploring new trade issues beyond the Doha Development Round, in which e-commerce features firmly. But what does this all mean for Africa?

In the past decade African states saw rapid economic growth tied to the commodities boom from the early 2000s, followed by the commodities bust.

While the boom resulted in some improvements in the average African citizen’s life, most states and their populations still face serious developmental constraints. Africa’s dependence on commodities has put growth prospects at the mercy of international markets, resulting in varied, episodic and skewed economic development.

The majority of African consumers and producers still face considerable barriers to doing business. The distances between consumers, retailers, and upstream suppliers, in conjunction with poorly developed infrastructure, mean that markets are somewhat isolated from their immediate geographic location. This isolation also means that competition is limited which adversely affects price, variety, and ultimately restrains innovative potential. The consequential, overarching issue arising from this is the limited economic participation within and among African states.

Fortunately, the march of progress has delivered a means of conducting business that transcends all these constraining factors – e-commerce.

The opportunity to market, buy and sell goods over the internet primarily offers consumers more convenience: more options are available, occasionally at better prices, and with more information. It also affords suppliers (notably SMMEs) better market reach, as markets can be better targeted and extended beyond immediate location, at more affordable prices since overheads from traditional brick and mortar operations can be avoided and numerous business functions either automated or outsourced.

As e-commerce makes markets and opportunities more accessible its development could benefit the marginalized members of society. Most notably it allows people who lack access to capital to pursue opportunities that weren’t economically feasible via old brick and mortar operations. Women in isolated rural settings subject to traditional gender roles would also benefit as they would be able to engage in long distance sourcing and selling.

However, e-commerce does require that consumers and producers have access to the internet on devices able to run applications or access web pages. It’s also helpful if options are available to affect payment electronically, but this is not a prerequisite for e-commerce, rather a facilitating factor. The recent increase in mobile technology uptake and the widespread use of ‘mobile money’ in Africa inspires some confidence that all the necessary components are present to build a growing e-commerce sector. Sadly, this is not enough.

Studies show that e-commerce sales can suffer from a lack of consumer trust in the absence of comprehensive, enforceable, consumer protection laws. Furthermore, even though transactions occur online suppliers might face order fulfillment issues given poor infrastructure and cross-border trade barriers.

Less than half of all African countries lacking have comprehensive online consumer protection legislation, and African states consistently rank at the bottom of the World Bank Logistics Performance and Doing Business indexes. Of moderate concern is the lack of fixed broadband connections within Africa, which is comparatively cheaper than mobile broadband connections. However, the adoption of mobile broadband connections does seem to be the best solution in the short to medium term as wider coverage can be granted at lower initial investment cost.

Clearly there are domestic issues that should be addressed first, but e-commerce by its nature is not contained within domestic markets. This means that agreements are required to regulate cross-border e-commerce transactions. Developed countries, like the USA and European Union, have already taken the lead in establishing frameworks for the inclusion of e-commerce in trade agreements, most notably the Trans-Pacific Partnership (TPP) and the Transatlantic Trade and Investment Partnership (TTIP). While the fate of these agreements in the wake of Donald Trump’s election victory in the US lies in the balance, both include provisions on e-commerce and both are considered very progressive in their content.

The TPP, for example, includes provisions on technical issues related to the cross-border transfer of information by electronic means, location of computing facilities, non-discriminatory treatment of digital products and the hotly contested protection of personal information.

These issues are by no means irrelevant in the African context and require due consideration as the conclusion and implementation of these provisions could impact Africa’s capacity to attract ICT investment and conduct cross-border e-commerce transactions. Considering that the majority of ICT and e-commerce enterprises are based in developed countries, the adoption of these provisions would naturally become the benchmark for the private sector. The result would be that African states and enterprises have to comply with such regulations which in themselves could prove to be new entry barriers.

Countries who are not members of such progressive preferential trade agreements like the TPP and TTIP are likely to become subject to these agreements at a later stage, either via the private or public sector adopting regulations. It is in the best interest of African states to effectively engage in multilateral negotiations on matters affecting the global regulation of e-commerce. Considering the stagnation in the WTO it’s worrying that South Africa, as the sole African representative in global economic governance fora like the G20, still seems reluctant to engage on the topic.

African countries should ensure that they create an enabling regulatory framework for e-commerce in their domestic markets, to harness the potential for economic growth. This should be done in a way that prevents further marginalization of African people, especially vulnerable groups, or exclusion from opportunities arising from 21st Century ways of doing business.

We have recently co-authored a discussion paper on the topic of e-commerce in Africa, available at GEG Africa, exploring the potential role of e-commerce in african development as well as its requirements.Pull QuotePill Quote

 Photo credit: Rakeman via Visual hunt / CC BY-NC-SA