Free Trade Agreements vs. The Climate

a story about Free Trade Agreements and how they damage our Planet

“The good thing about science is that it’s true whether or not you believe in it.” Neil deGrasse Tyson

While climate pessimists and climate optimists continue their debate on whether climate change actually happens, policy makers are acting like free- riders each defending its own interests, the international climate treaties and agreements reach limited success, and although the bigger part of the Earth’s population still do not care about climate change, the effects are becoming more visible every day. The international community, however, is still in heavy debate and while the mainstream discourse has been very optimistic about the ratification of the Paris Agreement (COP21), an International Relations (IR) perspective may offer a different view.

From several international relations perspectives, international law and political dominance often seem irreconcilable. Where the former oftentimes can be seen as an idealized regulated world, reflecting reason and justice, IR-scholars see something else when they reduce international law to power. International law is an important tool for powerful actors to create a certain legitimacy, they need to distance themselves from the power they hold over others. In this way international law secures a position between the demands of powerful actors and the norms, or ideals of the international community. Dominant states are often reluctant to abide by international law, it is seen as constraining and thus they turn to politics instead. However, the international legal system also distances itself from predominant power through sovereign equality. It just ignores the balance of power and leaves power relations to the political realm. This is why mainstream IR-theorists say that they are irreconcilable; to enforce your norms or international law you will need power, but it is unable to constrain powerful states on its own. In this way international law oftentimes appears to be a fairytale in which reason and justice prevail, whereas the power asymmetries in the international realm are in the sphere of politics, where there is no law. From this perspective international law can have several effects on the political realm. In this blog, we will argue that when speaking about the outcome of these power dynamics, it may sometimes result in pacification of the international environmental regime.

International regime on climate change

Well, of course there are international legal regimes on climate change, the most important of them being the UN Framework Convention on Climate Change (UNFCCC) within which states develop further agreements.

The purpose of the UNFCCC is stated in Article 2 of the Convention:

‘(…) to achieve, in accordance with the relevant provisions of the Convention, stabilization of greenhouse gas concentrations in the atmosphere at a level that would prevent dangerous anthropogenic interference with the climate system (…)’.

Instead of providing binding emission limits, UNFCCC provides a framework within which states develop further agreements, such as Kyoto Protocol (1997) and Paris Agreement (2015). Article 4 of the UNFCCC sets out the commitments of the states inter alia;

‘(a) Develop, periodically update, publish and make available to the Conference of the Parties, in accordance with Article 12, national inventories of anthropogenic emissions by sources and removals by sinks of all greenhouse gases not controlled by the Montreal Protocol, using comparable methodologies to be agreed upon by the Conference of the Parties;
(b) Formulate, implement, publish and regularly update national and, where appropriate, regional programmes containing measures to mitigate climate change by addressing anthropogenic emissions by sources and removals by sinks of all greenhouse gases not controlled by the Montreal Protocol, and measures to facilitate adequate adaptation to climate change;
(…)
(d) Promote sustainable management, and promote and cooperate in the conservation and enhancement, as appropriate, of sinks and reservoirs of all greenhouse gases not controlled by the Montreal Protocol, including biomass, forests and oceans as well as other terrestrial, coastal and marine ecosystems;’

Importantly, the commitments of developed countries differ from those of the developing countries as they bare more obligations.

For our purpose, we are particularly interested in the US and the EU. As to the US, it has ratified the Paris Agreement and under its National Determined Contribution (NDC), it aims to reduce net GHG emissions by 26–28% below 2005 in 2025 including land use, land use change and forestry (LULUCF). However, according to the Climate Action Tracker, this is not consistent with limiting warming to below 2°C, let alone with the Paris Agreement’s stronger 1.5°C limit.

As to the EU, the leaders have put forward an economy-wide target of at least 40% domestic greenhouse gas emissions reduction below 1990 levels by 2030. According to the Action Climate Tracker, these 40% reduction is behind what is achievable and necessary by the EU. So, taking into account current ongoing negotiations of new Free Trade Agreements (FTA’s), what does the future look like?

Free Trade Agreements and ISDS

The Fifth Assessment Report of the IPCC states that economic growth leads to the increase of CO2 emissions. Economic growth, however, is something that is desirable in the eyes of the most. So, we want economic growth, but also a decrease in CO2 emissions. During the Obama presidency the US had detailed a so called ‘Trade Policy Agenda’ in which they stated that, among the usual talks about absolute benefits for all, their trade policies would respect our environment, as a means to reflect the importance the US places on sustainable development. The US claims their trade and environmental policies should be mutually supportive and should strive towards a green economy.

The United States and our trading partners stand to gain when trade is open, transparent, rules-based, and fair, showing respect for labor and environmental standards.” — President Obama, May 6, 2009, from the Proclamation of World Trade Week, 2009.

In order to put some power behind these words the US and their FTA partners included an environment chapter in each FTA. The claim is that these obligations should help to ensure that the US and their FTA partners should enforce standards to protect the environment “in the context of achieving sustainable development goals”. How does this reflect on reality though?

If we take a look to FTA’s, we see that they are designed in such a way that polluters, like fossil fuel industries, are being protected instead of the environment. We will explain why free trade agreements are jeopardizing the future of our Planet.

The most foreseeable reason is that FTA’ s lead to an increase of the use in fossil fuels to transport the products between the countries who signed the FTA. FTA’s are, however, also damaging for the environment through a more hidden system, namely the Investor-State Dispute Settlement(Gallagher & Porterfield, 2016). The ISDS is a particular provision of international investment law (Slater, 2015).

It enables foreign investors to file claims against governments in an international arbitration forum, as long as the foreign investor is covered by an International Investment or Free Trade Agreement between the investor’s home country and the host country that includes ISDS provisions (Slater, 2015, p. 133)

This may sound complicated so I will try to simplify it. The idea is that companies like to make profit, and the more profit they make the happier they are. But what happens when environmental policies are in their way to make profit? If the company is part of a FTA that has the ISDS incorporated, then the company can sue the state which is ‘supposedly’ acting wrongful. The company can not sue the host state on the grounds of solely losing profit, although, this is often the main reason. Most of the times, the companies claim that states violated the right “not to be expropriated”.

How does this work? A company is investing in a state whereby, for example, the environmental policies are profitable for them because they are very unrestricted. This is especially the case for energy companies which use fossil fuels or have nuclear power plants. However, when the state decides to change those policies and make them more restrictive with the purpose to decline pollution and increase the use of green energy, then those companies have to close or change their power plants. This will mean a lost in future profit. The companies had not foreseen this when they decided to invest in that country, and, therefore, they claim a violation of the right not to be expropriated. This was the case of Vattenfall II vs. Germany, whereby Vattenfall asked for a 700 million euro compensation because they had to close their power plants in Germany after it adopted the Atomic Energy Act (Bernasconi-Osterwalder & Brauch, 2014). The problem with ISDS is that states cannot sue the companies for damaging the environment. So, if the nuclear power plant of Vattenfall damage the German environment, then Germany cannot sue Vattenfall. There is an imbalance of power.

This imbalance of power is especially harmful for developmental countries. It may even incentivize as a deterrence for states to implement environmental laws.

The U.S. bipartisan trade compromise of 2007 was the first to include environmental standards which should be applied to the ongoing FTA’s the US has with several countries. NAFTA, created in 1994, was the first to include sustainable development in its preamble and the first FTA to include environmental protection. However, while this at first sight may seem like an historic compromise from an environmentalist’s perspective, NAFTA also included Chapter 11, which provides a ‘right of action to a foreign investor against the government of the country in which it invested’. The right of action which was included in all FTA’s since 1994 has proven to be problematic in relation to national attempts to push for stricter environmental policies and regulation. While investor rights are important for the fair treatment of international corporations, it heavily strains with governmental decision-making power, and thus the legitimacy of such claims. In several cases even the threat of a claim may work as a deterrence to establish environmental protection policies, to avoid the risk of claims. For example in the case of Methanex v. United States; Methanex brought a claim against the state of California because they decided to ban the import of a toxic fuel which leaked into the groundwater which led to great health risks for the population. Or in the case of Sunbelt Water v. Canada, where Sunbelt sued Canada for a loss of potential profit from bottled water exports due to a change in national policy.

ISDS collides with Public Policy

These sort of claims are not rare under current FTA’s and could actually work as a deterrence to pass laws to protect the environment. In the current FTA’s that are under construction (TTIP, TPP, CETA) there is a concern regarding the ability of developing countries to counter these claims. In the case of Bayview Irrigation District v. Mexico, it was claimed that the Mexican government diverting water into Mexican farmlands, and in this way depriving claimants of their water rights. The arbitration tribunal decided that it had no jurisdiction over the claims and thus there was no claim under NAFTA Chapter 11.9, leading to a costly case in which the Mexican government had to cover all the costs for two years to defend themselves. While the continued inclusion of clauses like Chapter 11 could work as a deterrence for poorer countries, preliminary mechanisms to determine the validity of such claims may offer some hope yet. Even though in the case of NAFTA it has become apparent that it has served corporate actors well and the states and citizens seem to be benefitting the least, the same dubious claims are being made in with TTIP and CETA now, 20 years later.

Mini Research: “Free Trade Agreements vs. The Climate”

On Wednesday, the 23rd of November, we went to Amsterdam Central Station to interview some people who passed by. In the end we talked to 40 people of whom 20 were male and 20 female. We also asked their age. The youngest participant was 20 and the oldest was 57, but most were between the age of 30 and 40. All the participants were Dutch citizens.

The aim of the interview was to find out how much ‘ordinary’ people know about Free Trade Agreements in relation to the climate. We asked the following questions:

  1. When you think about Free Trade Agreements, do you then think about climate change?
  2. Can you think about a reason why/how Free Trade Agreements can affect the climate?
  3. Do you prefer environmental protection over economic growth?

The answers:

  1. None of the participants thought about climate change when they thought of Free Trade Agreements;
  2. 33 participants could not answer our question. 7 participants thought that more trade would mean more transfer of goods by truck or boat. 1 participant said that the use of more trucks and boats would mean that there would be an increase in the use of fossil fuels and thus an increase in Carbon emissions. 2 participants thought that the use of trucks and boats would damage the ozone layer. However, they could not explain why this is the case. The other 4 participants said that the use of more trucks and boats would mean that the air would be more polluted;
  3. 29 of the participants believe that economic growth is more important than the protection of the environment. 11 participants believed that protecting the environment is at least as important as economic growth.

Discussion of the results:

Free Trade Agreements are overall a complex phenomena and therefore not always correctly understood by the ordinary citizen. We were, however, surprised that none of the participants thought of climate change in relation to Free Trade Agreements. This could change if the media would not only frame Free Trade Agreements as an economic topic, but also as a much broader one. Stone (2002) famously said “How we perceive a problem is to a great extent determined by how it is framed. Framing is the social context into which a problem is placed, and therefore framing can consequently affect our perception of how a problem should be addressed or approached”. The media frequently discussed the economic side effects of CETA and TTIP, which are examples of Free Trade Agreements. The media sets the public agenda which also influences the political agenda. So, if the media would frame Free Trade Agreements in a broader spectrum, including the climate aspects, then our questions might have been answered very differently…

To end this slightly depressing blog with an optimistic note, here is Carl Sagan to sketch an hopeful vision of the future:

This Blog is made by: Emma Bouwman (2553708), Dimitri Baidjoe (2521090) & Narlen Pencheva (2558904)

Sources:

Bernasconi-Osterwalder, N. (2014). The State of Play in Vattenfall v. Germany II: Leaving the German public in the dark. International Institute for Sustainable Development.

Porterfield, M., Gallagher, K. (2016). TTIP and Climate Change: Low Economic Benefits, Real Climate Risks. Policy Brief.

Slater, T. (2015). Investor-State Arbitration and Domestic Environmental Protection. Washington University Global Studies Law Review, (14)1, pp. 131- 153.

http://digitalcommons.wcl.american.edu/cgi/viewcontent.cgi?article=1153&context=sdlp

http://unfccc.int/files/essential_background/background_publications_htmlpdf/application/pdf/conveng.pdf

https://medium.com/climate-change-law/5-the-international-climate-change-regime-15a45d33988#.czoolrf1j

http://unfccc.int/files/essential_background/background_publications_htmlpdf/application/pdf/conveng.pdf

https://medium.com/climate-change-law/5-the-international-climate-change-regime-15a45d33988#.czoolrf1j

http://climateactiontracker.org/countries/usa

http://climateactiontracker.org/countries/usa

http://climateactiontracker.org/countries/EU

http://climateactiontracker.org/countries/EU

http://www.state.gov/e/oes/eqt/trade/